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Tuesday’s RBA cash rate announcement turned out as we predicted summarising recent rhetoric regarding monetary policy and retaining the current rate at 1.50%. The current rates are consistent with sustainable economic growth which has been revised up for 2018 and 2019. The RBA also think the unemployment rate will reduce to around 4.75% in 2020 with a lift in Wage growth. The elephant in the room was the ongoing pessimistic view of the housing market. The RBA is becoming uncomfortable with the declines in Sydney and Melbourne prices. If credit tightens we could certainly see values go south putting a squeeze on consumer behaviour. US Midterm election voting caused market volatility Wednesday but as results were published suggesting the Republicans would retain control of the senate risk markets improved and the Australian Dollar posted fresh highs. 

New Zealand

NZ Jobless rate pushed the NZD/USD to a 3 month high of 0.6732 Wednesday. Figures releases showed the NZ unemployment rate plummeted from 4.4% to 3.9% surprising markets, the lowest level since August 2008. Reflecting a sharp drop in the number of unemployed was the increase in the number of employed people jumping from 0.5% to 1.1%. US Midterm elections bounced the kiwi around as results were published but by late afternoon risk returned to markets and currencies, after it looked like the Democrats would take control of the house and the Republicans to retain the Senate. The NZD traded higher through to the RBNZ announcement Thursday. The RBNZ kept rates on hold at 1.75% with Adrian Orr saying they would keep rates steady through 2019 and into 2020. He didn’t write off a potential cut based on future economic data, but we think this more than likely won’t eventuate. Growth in GDP is expected to pick up in 2019 along with household spending and population growth stimulus.   

United States

Voting number turnouts in the Midterm elections surpassed previous midterms significantly with interest being abnormally high. The Democrats took control of the House of Representatives (222 votes to 196 votes) while the Republicans maintained control over the Senate (46 Votes to 51 votes). It wasn’t the Democratic whitewash some were predicting but we did get some notable shifts in the power of the American political Bohemia. What we have now is a split between the upper and lower houses clearly making future political decisions more difficult to pass. Barack Obama had a loss of 968 seats during his reign as president so the 333 seat swing to the Democrats is worth noting. Trump is still in a good position to be re-elected in 2020 but is now on shakier ground. We wait and see now if the Democrats will decide to roll the dice and open up the president to investigations, something the Dem’s have said they would do. The Federal Reserve kept their cash rate on hold until the December meeting at 2.25% saying the labour market was strong with further gradual increases to come.

United Kingdom

UK’s Prime Minister Theresa may looks to have secured concessions from the EU to keep Britain in a customs union. This includes Ireland which effectively solves recent issues of a hard Irish border thus pioneering the way for a negotiated Brexit deal. May is also in the throws of securing an “economic partnership” of sorts with the EU. While 95% of a Brexit deal looks to have been concluded their are a number of issues still to be resolved. An important cabinet meeting was due to take place Thursday but has been postponed until today or possibly early next week. The British Pound has continued to push higher over the week. Against the greenback it has traded well above the 1.3000 physiological level at 1.3170 before a small correction and risk off mood took it back to 1.3070 Friday.


As drama unfolded during the Midterm elections the Euro showed plenty of energy chopping between 1.1400 to 1.1500 against the big Dollar. As headlines released the republicans were to retain the senate prices stabilised and risk markets returned with the Euro posting a monthly high. German Industrial Production for September came in at 0.2% m/m versus 0% expected along with Retail Sales from September missing the mark as well at 0% versus 0.1%. Reports have circulated that the ECB will consider TLTRO (Targeted long term refinancing options) in the December ECB meeting with the central bank requiring more funds. Next week the Euro has a slightly busier week with German economic sentiment and GDP.     


The Japanese Yen struggled to conger up any decent momentum over the week – the worst performing currencies as markets sought risk associated products. Bank of Japan’s Governor Kuroda said in a statement it was necessary to continue to ease monetary policy with slow inflation – but not the same as we have done in the past 5 years. The governor introduced a large scale asset program in 2013 and it was the best thing to do but now as the economy improves with solid corporate earnings and tight labour markets the bank recognises that continuing the monetary easing could affect financial stability. Next week’s quarterly GDP is the only tier one news on the docket. Price action will be interesting as the full extent of the US election results are yet to be realised, risk aversion could easily return sending the USD/JPY back to 111.50 from its current 113.95   


The Canadian Dollar has performed terrible over the week only just managing to outpace the Japanese Yen. We have seen a lot of soft data out of Canada over recent weeks along with weakening Crude Oil prices, as the CAD runs into its 6th straight week of losses against the US Dollar. We saw broad based selling of the US Dollar after election results started to filter through with investors preparing to take on more risk the CAD improved to 1.3050. “Ivey” PMI released better than the 50.9 expected at 61.8 strengthening the CAD also. Interestingly while the CAD has underperformed the economy grew 0.1% in August, the economy has been mostly performing well and remains on track for annualised growth of 2% for 2018.


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