Market Overview:
The US Dollar continues to strengthen despite political uncertainty.
Vladimir Putin has won a landslide victory election, he has hinted this would be his last term as president. Cementing his rule over Russia for another 6 years. He has secured 75% of the vote. Incredibly his total time as President will be 25 years on 2024, he will be 71 years old. The only President to rule longer is Joseph Stalin. The initial targeted voting was expected to be 70% – this turnout looks like it will significantly above this. South Korea’s foreign minister has said the North Korea’s leader Kim Jong Un has “giving his word” for the potential denuclearisation at the pending summit in May. In a bizarre turn of events Kim Jong Un said he was committed to scraping North Korea’s nuclear weapons and missile testing plans, surely he won’t give up his rights here without a fight for something else? The US Dollar has been under pressure for most of March due to political uncertainty but looks to be turning a corner with economic data continuing to improve. This week we will see the Federal reserve more than likely raise rates but what will keep things interesting is the clues as to how many hikes we will likely see through to the end of the year. With the market expecting 3 hikes, the market will no doubt view any hawkish tone for a possible 4th hike and subsequently lift the US Dollar (USD) higher. In contrast the RBNZ could be dovish Thursday when they announce their Cash Rate and statement, some are predicting a small chance of the cash rate dropping to 1.5% from 1.75%. If this eventuates we could see current NZ Dollar (NZD) levels across the board depreciate reasonably quick. The mostly result however is no change from the RBNZ. The Bank of England will also announce their official Cash rate on Friday with no expectation of any rise above 0.5%, but any hawkish tone in the following announcement may indicate a hike for May’s meeting. Further Brexit talks will continue in Brussels at the end of the week with the transition or implementation period being agreed upon Monday. This will mean the UK will leave the EU on the 29th March next year. The long awaited next phase can start with finalising trade details and future EU and UK relationships post Brexit. A busy week ahead for financial markets with lots happening to shift markets, with any luck we may see some pairs jump from current ranges.
Australia
The Australian Dollar (AUD) came under severe pressure late in the week after President Trump’s new chief economic adviser made comment he was unmistakably positive in his support for a stronger US Dollar. Markets back tracked and the Australian Dollar travelled to new lows against its main rivals. The Aussie (AUD) may ironically trade higher over the week on general sentiment if the Fed raises rates and follows through with a hawkish tone. Key data this week is set for release on Thursday with employment numbers. If unemployment prints north of 5.5% it could be further detrimental for the waning Aussie (AUD).
New Zealand
The New Zealand Dollar (NZD) has underperformed to close the week lower against its main opponents, shaken by US political uncertainties and international trade policy. Sending the New Zealand Dollar (NZD) weaker was a raft of positive US data including Industrial Production and University of Michigan consumer sentiment with NZ Business Manufacturing Index printing slightly worse than expected. The RBNZ rate statement is released Thursday and interest rates should remain unchanged at 1.75%, but this is not guaranteed with a couple of market participants suggesting a cut. A bias towards cutting rates at some time in the future could be possible if we see moves in the forecast of inflation expectations. With the Federal reserve to announce their cash rate on Friday and ultimately offering higher interest rates we could see a shift in US equities trading lower which in turn could put increased pressure on the New Zealand Dollar (NZD) long term. Dairy global auction is Wednesday (GDT) with a less than favourable weighted price growth of -0.6% expected.
United States
The US Dollar (USD) gained popularity in the later stages of last week closing in a positive attitude across the board. The US Dollar index is higher comfortably trading above the 90.00 threshold at 90.30. Despite the political uncertainties the Dollar has made up lost ground from earlier in March with stronger than predicted data both monthly industrial production and UoM (University of Michigan) consumer sentiment helping to boost the US Dollar (USD). The G20 meeting this week in Buenos Aires promises to be juicy and potentially confrontational for the US Treasury secretary Steven Mnuchin, he will no doubt field questions from other world finance ministers on Trump’s trade plans and hear pleads for exemptions. The Federal Reserve will announce the new cash rate this Thursday which is 100% priced into market expectations to be raised to 1.75% from 1.5%. The following statement will be key as to possible indications of 3 or 4 rate hikes for 2018, if 4 are hinted one would think this could give the greenback (USD) a lot more muscle. A heavy calendar this week for the US economy should ensure much needed volatility to the markets.
Europe
The EURO (EUR) came off its high of 1.2410 earlier in the week against the greenback (USD) to trade as low as 1.2300 Monday’s low during the Thursday NY Session. It continues to move in a wide range set around 1.2350 levels since late January. US Jobless claims published bang on expectation of 226k as the number of individuals filing for unemployment stabalised. Empire Manufacturing followed surpassing expectation dropping the EUR back to 1.2300 with US Dollar led strength. A move back to the top of the recent band of 1.2500 could be challenging in the near term. Next week is the Federal Funds Rate with markets expecting a hike of 0.25% the first of several to follow since the 0.25% rise in December last year.
United Kingdom
The British Pound (GBP) continued its run north against the US Dollar (USD) pushing back over 1.3900 Thursday. With only Philip Hammond’s budget speech to write home about last week the Pound rallied over US led news. Predominantly flat over the last 10 weeks or so the British Pound gained traction continuing last weeks gains from 1.3770 pushing to a high of 1.3995. This week sees both Bank of England (BoE) and Federal Reserve Cash Rate announcements – while the Fed will talk up the economy and raise rates to 1.75% from 1.5% the Bank of England is still embroiled in Brexit related uncertainty and will hold rates steady. If anything, the voting opinions may change more to the persuasion of hiking at May’s meeting. The second installment of Brexit negotiations took place Monday with both EU and UK’s chief Brexit negotiators meeting. The transition or implementation period has been agreed and will likely be signed off in Brussels at the end of the week. This will mean the UK will leave the EU on the 29th March next year. The news rallied the GBP back over 1.40 to a high of 1.4085 before falling back a tad. CPI (yearly) with Retail Sales and Producer Price Index all publish this week. This will ensure the week for the Pound (GBP) will continue to be a roller coaster ride.
Japan
Another light week of data for the Japanese nation brought about choppy markets towards the end of last week and flowing into this week. Japan’s Trade Balance Monday showed the economy moving into positive territory coming in at 3.4B against the -.94B the previous month making no real price shift on the Japanese Yen (JPY) against the US Dollar (USD). We have minor Manufacturing data on the Japanese calendar this week, the main driver will be the Federal Reserve hike to rates expected from 1.5% to 1.75%. A break through key support of 105.50 could imply a rapid decline for the USD through to 100.00. I am expecting a lift in the USD back to 118.00 once buyer confidence returns to the Dollar (USD)
Canada
The Canadian Dollar (CAD) continues to weaken against the US Dollar and across the board. Currently it’s trading at 1.3030 which is a 9 month low versus the greenback. Suffering its worst week of depreciation since May 2016 it slid over 2%. Friday’s Manufacturing Sales disappointed, a worrying trend as the last few months have also printed terrible. It didn’t stop there with building permits and Housing starts also below the expected numbers. This week sees Retail Sales and CPI, if we don’t see some sort of improvement in economic data the Canadian Dollar may be looking down the barrel at the 23 April 2017 1.3800 level. As the Fed raise the rates past the current 1.50% this week and later again several times over the course of the year it may get a look at the prior top of 1.4500 coming into play.
Major Announcements last week:
• US CPI m/m 0.2% against 0.2% expected
• US Core Retail Sales prints at 0.2% over 0.4% expected
• US PPI m/m 0.2% over 0.1% expectation
• US Retail Sales -0.1% against 0.3% expected
• Crude Oil Inventories 5.0M against 2.2M for the week
• NZ GDP q/q 0.6% based on expectation of 0.8%
• NZD and AUD trade over 1 cent lower.
• G20 Meeting in Buenos Aires this week.