FX Update

Worldwide coronavirus cases surpasses 7.5M with over 423,000 deaths officially reported.

The Federal Reserve policy was unchanged maintaining its 0% to 0.25% rate in a vote 10-0 in favour. In a similar reading to April the dovish tone filtered through from Powell given how far off the target mark the economy is tracking with employment and inflation. Powell said making similarities to the Great Depression is a “bad analogy” – while second quarter economic data is the worst on record there are “so many fundamental differences” including a strong economy and healthy financial system prior to Covid-19 lockdown. Although the virus looks to recede a second wave is likely. Although the Fed made note to the improving financial conditions which has limited the need for further QE action in the short term, they clearly will rely on whatever is necessary with unlimited options at their disposal. They will continue with the 80B per month bond buying program. Fed forecasting puts GDP at -6.5% in 2020, 5% in 2021 and 3.5% in 2022. Unemployment is not as bad as previously speculated with figures to peak this year at 9.3%, 6.5% in 2021 and 5.5% ending 2022. The current tone should support further risk buying across the globe with the New Zealand Dollar and Australian Dollar forecasted to push higher yet. 

The New Zealand Dollar has been the strongest currency from the majors in June, outperforming against the US Dollar by over 5.0%- the weakest currency. 

It’s difficult times for traders currently as the overall fundamental components in many currency pairs are showing signs of massive sell’s – but on the charts it’s the other way around with indicators suggesting these are good times to buy. It’s becoming quite alarming how wide the disconnect has become between the fundamentals and technicals. There are things brewing in the background which is making us nervous. Things are certainly not looking prosperous out there.     

  Key Points…

  • The New Zealand Dollar fell below the 200 moving average for the first time since 19th May
  • 1.5M Americans filed for unemployment to the week ending 6 June
  • EU and UK have agreed to ramp up the timetable for Brexit trade talks 
  • US equity markets declined sharply – the DOW is down over 6% overnight and the Nasdaq 5.0% after closing at a record high yesterday over 10,000 
Previous ArticleNext Article