Collinson FX Market Commentary - May 12 - Banks sit on their hands

by Collinson FX on 11 May 2017 Collinson FX Market Commentary - May 12 - Banks sit on their hands

The Bank of England and RBNZ both left rates unchanged, as expected, but associated commentaries were negative. The Bank of England continued current accommodative Monetary Policy and indicated a penchant for rises 'assuming a smooth transition Post-Brexit'!

The GBP drifted back to 1.2890, after a recent bull run, with markets reflecting obstacles for a trouble-free Brexit. The RBNZ had recognised improving global economic conditions, but noted weaker NZ GDP, in the final quarter of 2016. The outlook was positive with support from stimulative Monetary Policy. This projects loose monetary conditions for a considerable time.

The NZD dropped a big figure, to 0.6828, but recovered overnight to settle around 0.6850. The AUD remained vulnerable, trading 0.7370, adjusted to the new post-budget economic environment. The Government has turned to raising revenue, rather than curbing expenditure, to cure the deficit. This is for short term electoral gain and contradicts conservative economic theory. The expansion of tax revenues, thus Government, necessarily attacks the private sector and growth.

Collinson FX Market Commentary - May 11 - Inaction expected from RBNZ

Markets were quiet overnight with US markets dominated by the talk of the sacking of the Chief of the FBI. Trump sacked FBI Director Comey, which was a shock to most, because of the timing and not the reason. The Dollar drifted, with the EUR trading 1.0850, while the GBP held above 1.2900. Chinese CPI was slightly higher than expected and commodity prices were steady.

The Bank of England and the RBNZ are both due to announce rate decisions, although in different circumstances, but outcomes will be similar. The Bank of England has seen a strong rally, in recent times, although the looming election will ensure inaction. The RBNZ has no such pressing political issue although inaction is also expected.

The associated commentary will reveal the thoughts of the Central Bank on the state of the NZ economy and required monetary policy needed to compliment stability. The NZD was stronger, in anticipation, rallying back above 0.6900. The AUD has crept back to 0.7350, post the 'Budget', which has become a political event.

Collinson FX Market Commentary - May 9 - Aussies tax banks

May 9 - South Korea elected a left wing dove to the Presidency, which may calm a heated situation on the Korean peninsula, but only time will tell. European markets were calm after the predictable election of Macron, with the EUR slipping to 1.0870, while the GBP held 1.2940. German Trade continued to expand, increasing their massive trade surplus, enabled by the single currency.

The Australian budget was delivered and changed the focus from a reduction in spending to an expansion of revenue. This is a different approach to the goal of balancing the budget. This is a move away from the ideological 'smaller Government' to expanding tax revenues and avoiding electoral pain. The increase in taxes come from a levy on Banks, increases in the Medicare levy even further taxes on luxuries like tobacco.

This is an attempt to solve the fiscal problems without paying an electoral price and will impact. Massive infrastructure spending may stimulate the economy but increases the Government tax revenues will necessarily deprive the private sector and test real growth. The AUD has fallen back to 0.7340, while the NZD slipped below 0.6900, as the reserve recovers.

Collinson FX Market Commentary - May 8 - A President with no Party

May 8 - European markets drifted lower, following the election of the centrist, Macron. The reality of governing now becomes the question in France. Macron has no established political party, therefore no parliamentary party, to run Government. He has parliamentary elections to elect some legislators but will need to form alliances with both the established parties to rule effectively.

The EUR dropped to 1.0925, with more downside on the horizon, while the Yen hit 113.00! Australian Building Approvals plunged 13.4%, nearly 20% annualised, placing downward pressure on the currency. The Dollar posted gains pushing the AUD below 0.7400, while the NZD doggedly held on to 0.6900. Chinese trade data was strong supporting commodity demand while global growth and inflation will influence this weeks click here and here Or for the latest update click here

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