Collinson FX Market Commentary - July 22 - RBNZ's words undermine NZD

by Collinson FX on 22 Jul 2016 Collinson FX Market Commentary - July 22 - RBNZ's words undermine NZD

July 22 - The ECB left rates unchanged, but Draghi promised further action, as they 'reassess the underlying macroeconomic conditions'. This did little to support the recent rally in global equities, which hit the wall, with losses across Europe and the USA.

The Bank of Japan has denied the need for 'helicopter money', via expanded QE, allowing the JPY to move back to 105.80. The Philly Fed survey saw a contraction of 2.9%, while Exiting Homes Sales and House Prices were tepid. US Leading Indicators were positive, but weak, undermining economic growth prospects. The GBP continued to book gains, hitting 1.3200, reflecting prospects post Brexit.

Commodity demand was weak, hitting the associated currencies. The AUD slipped below 0.7500, while the NZD surrendered the huge number of 0.7000, undermined by the RBNZ statement telegraphing further interest rate cuts. Global economic sentiment is not strong, while economic data remains weak, thus requiring Global QE. Markets are reflecting this although equity markets remain nervous, with the balloon skin growing gossamer thin, testing investor courage.

Collinson FX Market Commentary - July 21 - It's official - No slowdown
July 21 - The Bank of England released a report showing 'no clear evidence' of a slowdown in the British economy post-Brexit! This is not a great surprise, considering nothing has changed, apart from the vote and intention. Negotiations for the 'Brexit' have not yet commenced and are likely to continue for at least a couple of years.

The European bureaucracy, like most behemoth Government institutions, are incapable of quick and adroit action. This is one of the problems with the EU, which has taken years to negotiate a trade agreement with Canada and remains far from settled. This is yet another reason why the UK will benefit from leaving the EU. The Eurozone has failed to expand trade with global markets, outside the group of European members, adding to economic stagnation.

Britain was the worlds greatest trading nation and now has the opportunity to reassert and thrive. UK Unemployment fell to 4.9% and the GBP gained strength, to trade 1.3175. The EUR remained around 1.1000, while the JPY traded 106.60, heavily immersed in QE. Equity markets remained firm, around record levels in the US, with the Banks leading the earnings season gains.

Oil fell to $45/barrel, leading a raft of commodities lower, putting a ceiling on associated currencies. The AUD remains below 0.7500, while the NZD battles to hold the very big number of 0.7000. Central Bank intentions in Australia and NZ are clear, with NZ LVR's, clearing the decks in preparation for rate cuts.

Collinson FX Market Commentary - July 20 - Markets make full recovery
July 20 - RBA minutes provided a great summary of global economic conditions and how they impact the Australian situation. The RBA considered the impact of the Brexit and recognised that markets were back to pre-brexit levels, except the GBP, which may be impacted by future trade prospects. The impact on the Australian economy was minimal, considering the minute trade between Europe and Australia (UK 3% of Exports and EU 4.5%!!!), which would surprise many.

The RBA observed global growth was moderate, while Employment remained firm as inflation disappointed. Local conditions were steady and growth was moderate, while exports drifted, impacting trade and employment. The summary was discouraging, with the AUD and Unemployment too high, while inflation and growth too low. This suggested a likely rate cut and immediately converted to the currency, which shed a big figure, after digestion.

The AUD trades below 0.7500, while the NZD is headed towards 0.7000, after LVR adjustments cleared the way for further RBNZ rate cuts. The Dollar booked gains, adding to downward pressures on commodity currencies, while the EUR slipped to 1.1000. The GBP fell to 1.3100, while the JPY moved to 106.20, as sentiment in Europe slipped according to ZEW surveys. Central Bank commentary and market speculation remains the major driver of markets and the internal discussions are fantastic insight to global conditions.

Collinson FX Market Commentary - July 19 - Brexit a boon for Brits?
July 19 - The tumultuous weekend of terrorism in France and a failed coup in Turkey failed to unsettle markets. Equities and currencies commenced the week quietly with the USD settling and share markets perched just below highs. QE has provided massive amounts of cheap money to supply equity markets and it would take a huge Geo-Political event to upset the rallies.

The EUR traded 1.1075, while the GBP jumped to 1.3300, later drifting back to 1.3260. A Bank of England member has questioned a need for a rate cut, which can be justified, as Brexit may be a boon for the country and the currency.

NZ CPI came in at 0.4%, for Q2, missing expectations. This pushed the currency below 0.7100 and with the looming RBNZ update, points to further downside. The AUD continued to trade around 0.7600, with the returned liberal Government nominating a no-surprise incoming cabinet, calming markets.

Markets remain quiet, awaiting the next Geo Political event or Central Bank disruption, to determine the direction currencies and equities.

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