FX News

Markets were fairly flat Friday as investors waited for second quarter US economic growth data. As we expected we saw some much needed excitement with US economic growth increasing significantly for the second quarter as GDP rose by 4.1%. The interesting aspect of this number was that it’s the first time it’s published above 4.00% since 2014. The first quarter GDP increased 2.2%. President Trump will claim a win for Trump policies even though the figure could be revised lower. We will certainly hear more on this from Trump with several media outlets recapping on the comments made when Trump said he would create more than 3% economic growth in the economy when he was elected. Hear are a couple: “Democrat elites said President Trump’s policies would throw the US into recession”, “They said a 4.0% GDP rate was impossible. It was a thing of the past”. The New York Times- So we are very probably looking at a global recession, with no end in sight”. We are by no means on the Trump wagon here but one can’t ignore the USA is on schedule for their best economic year in well over a decade. The greenback ended the week higher than most of its counterparts with the US Dollar index up slightly to 94.73 after the GDP announcement. Only the EUR was stronger after Draghi delivered a confident future assessment of the Eurozone and Junkier defused any threat of possible trade tensions. Volatility in the currency markets will start to ramp up from Tuesday with a lot of continued focus on global protectionism with global trade. We also have a heap of economic calendar risk especially in the later stages of the week with several central bank decisions to release such as Bank of Japan (BoJ) today, Bank of England (BoE) Thursday with the vote expected to be 8-1 in favour of hiking to 0.75% and also the US Federal Reserve, which are not expected to hike rates this time around until the September meeting. To end the week if this wasn’t enough to rattle your cage we also have US Non-Farm Payroll early Saturday morning. We expect the New Zealand Dollar to retest 0.6760 this week. Read more

Australia

CPI Data released on the softer side representing 0.4% growth down from the 0.5% expected by markets. This makes the total for 2018 of 2.1% while the year on year rate is still ticking along at 2.2%. Most of the growth has been in fuel price strength, electricity and tobacco with clothing footwear and furniture having been weak. The Australian Dollar dipped to 0.7350 against the greenback but has since recovered after risk sentiment improved. The Aussie has be swayed by global developments with President Trump meeting with EU’s Juncker to work out a long term trade deal. How things play out with the impact with US and its impact on China is something the Aussie will remain sensitive to. In recent days the Australian Dollar has worked itself higher from 2018 lows.

New Zealand

With a lack of onshore economic data to release this week in New Zealand, we have seen global news dominate kiwi movement. Trade Balance Wednesday disappointed coming in at -113M versus 200M expected but surprisingly had little effect on the NZD. President Trump’s tweets have been the highlight of the week as we said earlier with the New Zealand Dollar drivers coming in the form of big picture macro themes. Commodities and equity prices improved with risk sentiment and the kiwi pushed north. The only currencies to value higher this week is the CAD and the AUD. Markets will continue to monitor updates on the global trade front, but for now the kiwi as a risk favoured currency will continue to benefit on positive headlines. Read more

Markets have turned yesterday to become risk averse again based on President Trump’s tweet which was aimed at the Iranian President- Rouhani and goes like this:- NEVER EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE. WE ARE NO LONGER A COUNTRY THAT WILL STAND FOR YOUR DEMENTED WORDS OF VIOLENCE & DEATH. BE CAUTIOUS. Fake news and “witch hunt” remarks have followed, The President intents to call a spade a spade and continue with his own personal agenda. The US Dollar Index has bounced off 94.20 over the weekend and pushed higher to 94.60 as Trump’s tweet weighed in on risk assets sending the index higher. The greenback has been the strongest currency this week and may continue to be for the next few days if “tweets” continue to pressure sentiment.  As US based equity and commodity based assets are weaker so to are the UK equity markets as Brexit concerns weigh down the British Pound. The Pound was off from 1.3250 late last week falling to 1.2950 before reversing some of these losses with is recovering back to 1.3130. The Lloyds Bank Investor Sentiment index which measures sentiment in asset classes such as equities and UK Properties has declined 7.2% from June 2018 to July 2018 with the most concerning aspect being property. Sentiment towards the UK Government and Govt Bonds has also been affected by Brexit uncertainty dropping over the last month. China has vowed to retaliate soon in response to President Trump’s 200B tariff threat on Chinese products. Even a great start to the second quarter US earnings season has not helped sentiment with more than 90% of US companies reporting surprises to the upside. The (ECB) European Central Bank will announce their cash rate Thursday with no change expected to monetary policy until well into mid 2019. With a reasonably light economic week on the cards direction is expected to be mainly driven by Presidential speak. The New Zealand Dollar remains range bound since late June trading both ways within a cent of 0.6800 against the US Dollar, this week we should see the same with only NZ Trade Balance on the docket. Read more

Australia

Yesterday’s Aussie June employment figure surprised to the upside, after several months of flat or negative figures – following what was on paper the longest uninterrupted stretch of jobs growth on record. The ABS data revealed that the Australian economies employment change far exceeded forecasts, adding just shy of 51k jobs in the month of June, expectations had been for 14K. However, the massive figure couldn’t shift the headline unemployment rate, which held at 5.4%, with the figure attributable to a kick-up in the participation rate. The numbers will be a relief for the RBA who have sited that interest rates can’t be shifted until a tighter labour market generates wage growth and thus higher inflation. The Aussie was pulled in different directions, on the one hand by the positive local data, and on the other the tense global backdrop. The AUD/USD saw a 0.7440 high after the release of the employment data, only to have the succumb to pressure overnight by a stronger USD. Also not helping the AUD were weaker commodity prices especially copper prices which dropped to 12 month low. The risk remains to the downside after the break of 0.7400 now looking to the next support level at 0.7330.

New Zealand

NZ markets have been choppy this week, as the softer CPI data saw little movement in the NZD. Later in the day however, the RBNZ released their own favoured measure of core inflation which was much higher. This saw the NZD surge up to the 0.6839 level. However it was unable to hold these higher levels and has spent the last few days drifting lower on the stronger USD and lack of follow up local economic data. While there is little case for a near-term rate hike, given the RBNZ’s view this week, we believe the market maybe underestimating the probability of a rate hike in the first half of 2019. Results from the Global Dairy auction were lower, but this saw little immediate impact on NZD values.  The NZD/USD is currently around 0.6740 with support still around 0.6720 and we look for a 0.6730 -0.6770 range to hold to close the week. Read more

Market Overview:

Markets closed the week on a more positive note, continuing to shrug off Trade war fears. This week begins on a mixed note and with Japan closed for a public holiday and as such equity volumes in Asian markets were lighter. Trade tensions have eased somewhat as officials in Beijing appeared to moderate their response to President Donald Trump’s tariff threats amid a slowing economy, falling stock market and weakening currency. Data released yesterday, showed China’s economic expansion slowed slightly from the previous quarter, with industrial output in June below estimates at 6% v’s 6.5%. However, China May GDP saw an increase of 1.8%, above the forecasted 1.6%. Also, with the earnings season ramping up, investors may get a greater understanding of how the start of the trade war is impacting corporate profitability. This week will see profit reports due from a raft of market heavyweights; Bank of America, Goldman Sachs, Morgan Stanley, American Express, Netflix, Microsoft, Taiwan Semiconductor Manufacturing, Unilever, Johnson & Johnson and IBM. After a bumpy NATO meeting and UK visit by the US President, markets will also be keeping a weather eye on developments from the first summit between U.S. President Trump and Russian President Vladimir Putin. This afternoon will see the release of RBA minutes from the last meeting and later tonight US Fed Chairman Powell delivers the semi-annual Monetary Policy Report to the Senate Banking Committee and answers lawmakers’ questions. Read more

Market Overview:

Markets saw last week out on a positive note as the June US Non-Farm Payrolls figure came in ahead of estimates at 213K with an upward revision of May data to 244K. The Unemployment Rate was modestly higher due to an increase in the participation rate, up from the 3.8% level previous, to 4%.
There was little negative market reaction on Friday to the news that the US introduced tariffs on $34bn of Chinese goods, or that China had immediately retaliated by imposing a similar 25% tariff on 545 US products – also worth a total of $34bn. Global equity markets along with risk-linked currencies actually pushed higher on the announcement, another example of sell the rumour buy the fact.
This week brings more political events with US President on a trip to Europe meeting with other European leaders at the NATO summit at towards the end of the week and then a meeting with Russian president Putin on Sunday….given past events over  Trump’s discussions at last month’s G-7, markets are bracing for further volatility. There was more positive news around Brexit over the weekend with UK PM May, gaining cabinet support for a pro-business plan which includes a free trade area for industrial and agricultural goods, based on a “common rule book” and a “combined customs territory” saw the UK pound gap higher on the open yesterday.
Also this week are several central bank speeches which may be helpful pointers for future direction, BOJ Governor Kuroda, ECB President Draghi and BOE Governor Carney all address an audience at some point this week. The Bank of Canada will hand down their rate decision on Thursday; and the ECB release their monetary policy minutes. New Zealand and Australian markets opened the week on a more positive note with both currencies higher on a softer US dollar and taking advantage of a higher appetite for risk. Read more

Australia

The Australian Dollar (AUD) has been quiet this week with US Independence Day celebrations. Retail Sales boosted the Aussie off its lows Tuesday but has since gone nowhere quick. It continues to be influenced by the Chinese Yuan especially with lower trading volumes this week. Markets look towards Non- Farm Payroll Friday for some much needed excitement.

New Zealand

The New Zealand Dollar continues to underperform against a basket of currencies. The Trade Weighted Index (TWI) is still struggling to hold 72.00 from the 75.50 levels of mid May 2018. Chinese tariffs on US products kick in on the 7th of July which include dairy and other agricultural products. This should turn out positive for NZ dairy prices with increased tariffs on US products this will make NZ dairy cheaper and more attractive to consumers. The Chinese should also increase the demand over time for NZ made dairy products.  Markets look towards Non- Farm Payroll Friday for some much needed movement. We remain sellers of NZD.  Read more

Trade-war concerns, political risk in Europe and divergence in monetary policy across the globe remain, some of the ongoing key themes to worry investors. This month looks to be overshadowed by the twin thrust of both politics and trade. Trade tariffs have kicked on, with Canada imposts becoming active with threats from the European Union and the US over the fallout of any car tariffs. This strained situation continues to fill financial markets with unease. The US President travels to Europe for a NATO meeting in Brussels to be held on 11–12 July. Tensions raised at the last G-7 meeting between the allied governments remain high, and NATO observers are asking whether the meeting in Brussels will be marred by calamities similar to those at the G7 meeting in Canada. Uncertainty around whether President Trump will stick to agreements or denounce them leaves his allies nervously in limbo. All of these uncertainties have the potential to make this month volatile for both currency and equity markets as they try and balance conflicting trade and political winds to prevent a more severe market dislocation. This week’s US 4th of July holiday, is likely to see lower trading volumes from today onwards until the all important US Non-Farm Payroll is released. On the local front New Zealand business confidence continues to slip with technical indicators and markets suggesting that the Australian dollar may be set to rebound from a first-half 2018 loss against its New Zealand partner. The spread that Australia’s two-year bonds enjoy over New Zealand’s has now more than doubled to 20 basis points from the start of the year to the widest since 2013. The NZDAUD pair’s (MACD) moving average convergence divergence, a key momentum indicator has risen above a crucial area suggesting a bullish trend for the Australian Dollar. Read more

Australia

The Australian Dollar (AUD) has taken the week off with no significant data published. It has broadly drifted lower on a lack of support with risk sentiment over the week down with investors preferring to hold US Dollar. The royal commission investigation into Australian banks is heating up, the RBA noted that there could be some further tightening of lending standards which could have an effect on the banks ability to loan out money. If this happens it will have an adverse effect on the economy forming a credit crunch of sorts and ultimately added pressure on the Aussie. Tuesday we have the RBA cash rate statement announcement and statement which is due to remain at 1.50%. We think the chances of a hike in rates won’t happen until 2020 if comment is made to suggest this we think the Australian Dollar could weaken off further to 0.7200 against the greenback.

New Zealand

The RBNZ left rates on hold Thursday at 1.75%. The following monetary policy statement showed a slight bias towards bearish sentiment. Responses from a couple of banks have suggested the next rate announcement could be a cut based on weaker GDP with more risk to the downside in the global economic outlook. We feel the statement was generally neutral with Adrian Orr suggesting May’s monetary policy statement remains intact. Employment is within sustainable levels and consumer price inflation remains below the 2% target. Adrian Orr highlighted the OCR would remain at these levels for some time. ANZ Business confidence published earlier in the week and showed a negative figure of -39.0 the lowest in some years showing a very pessimistic view of the things to come in the business sector. Read more

Market Overview:

Markets eased into the weekend on low trade volumes with a lack of economic data making for an uneventful close to the week. Over the weekend the OPEC meeting was held in Vienna attended by the wealthiest oil producing nations. The organisation has agreed to increase oil production and by 1M barrels per day starting in July. At this point they are unsure exactly which countries will be boosting their current production. Markets have countered the 1M production indicating this could be more like 600M to 800M barrels per day. The news boosted oil prices from mid 66.00 to over 68.00 per barrel. President Trump has directly blamed OPEC’s production cuts for higher prices recently. He urged OPEC to keep prices down, ironically even though the hiked prices in crude have come about since his decision to sanction Iran which has had a major impact. Markets Monday are already lower, the safe haven JPY has benefited 40 points since the open. China is holding its ground in the face of further threats by Trump but China’s option could be limited as they seek to avoid an all out war. The Chinese government doesn’t want to show any weakness as they come under further pressure but we have seen a lot of media coming out of China to suggest they will fight any trade war to the bitter end. President Trump after all is unravelling 30 years of globalised trade systems and agreements. The S&P is trading at 2754, DOW 24580, Nasdaq 7687, Gold 1,270.95 and the US Dollar index is at 94.16 a 5-day low. Equities and Commodity markets may struggle to trade higher over the coming days as trade tensions continue to dampen market sentiment. RBNZ cash rate announcement publishes Thursday with the benchmark rate expecting to remain unchanged at 1.75%, but with weaker fundamental data releasing recently the monetary statement will be key to any moves higher. The biggest economic release on the US docket this week is quarterly GDP which prints Friday with expectations of around 2.2% down from March’s figure of 2.9%. In early news this morning the EU have responded from the US tariffs on European steel and Aluminum by raising tariffs on US made motorcycles from 6% to 31%. This will have a huge effect on Harley Davidson who will now focus on shifting some of its production overseas to avoid the tariffs. This will cost them 90-100M this year alone. The additional tariffs on their motorcycles equates to an average of USD 2,200 on each retail cost of a bike. Read more