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Collinson FX Market Commentary - Oct 20 - KIWI plunges on Govt change

by Collinson FX on 19 Oct 2017
J- Class Regatta - 35th America's Cup - Bermuda June 13, 2017 Richard Gladwell
Market Commentary - Oct 20 - KIWI plunges on Election change

Equity markets took a spell, but remain at record highs in the US, while under pressure in Europe. The Spanish PM Rajoy, invoked Article 15 of the Spanish constitution, which removes Catalan autonomy. The Catalan's refused to back down on independence and they have been punished accordingly. This creates instability in European markets ahead of the the EU's two day summit. The other major point of discussion will be Brexit.

The EUR traded 1.1830, while the GBP drifted to 1.3150, impacted by the lack of progress in post-Brexit trade talks.

NZ finally got a new Government, with the NZ First Party joining with the Labour/Greens, forming the super Rainbow coalition. Markets immediately reacted with the KIWI plunging towards 0.7000! NZ First got four Cabinet posts and the Deputy PM role.

Key policy areas will be Immigration and the curbing of the RBNZ powers. Labour is expected to expand fiscal spending and loosen monetary policy, while increasing the minimum wage. The Left-wing Government have also threatened to curb foreign investors in the housing markets. Investment is perhaps a bigger threat to the economy than the fiscal expansion. Immigration has been a major driver of growth in the NZ economy so this will directly impact. Tax has been supposedly deferred to a second term so fiscal expansion will be paid for in increased borrowings. Time will tell.

Australian employment data was strong, pushing the AUD back to 0.7850, highlighting the moves in the NZ cross-rate.

Market Commentary - Oct 19 - Dow surges again

The Dow surged again, after Treasury Secretary Mnuchin commented on the impact of tax reform on the stock market. He made the simple observation that the bull run was dependent on the tax legislation passing Congress and failure to progress would see a sharp reversal.

This was a statement of the blindingly obvious, but sets out in black and white, the consequences of failure to legislate. Pressure will build on lawmakers as investors seek to ensure extension of the rally. Currencies were steady, with the EUR trading 1.1800, while the GBP regained 1.3200. European markets await the Catalan Independence outcome and the UK continues to trade around Brexit negotiations.

The AUD trades below 0.7850, while the NZD drifts back towards 0.7100, unsettled by the lack of Government. No Government has yet to be determined, as the soap opera surrounding the formation of Government continues, creating uncertainty which is kryptonite to markets.

Market Commentary - Oct 18 - Dow hits new high

The Dow burst through a new record high, 23,000, going from strength to strength. US economic data continued to confirm the strong economy. The NAHB House Market Index grew, while Industrial and Manufacturing Production was steady, as NAFTA negotiations progress. NAFTA is crucial to Mexico and Canada, although the Canadian trade surplus is considerably less than the Mexicans. Mexico has a lot to lose, so negotiations will be serious and purposeful.

The EU is said to be ready to negotiate a post-Brexit trade deal, which is a massive development, while UK economic data remains strong.

The GBP traded 1.3180, after steady inflation data and bullish commentary from the Bank of England Governor. The EUR drifted to 1.1770, after softer sentiment reflected in the important ZEW report, although the Geo-Political risks from Catalan independence remain.

NZ CPI numbers boosted the NZD back to 0.7200, but the RBNZ ruined that scenario citing static inflationary pressures, prompting the NZD to fall back to 0.7150. The RBA released their minutes, which observed tightening monetary policies in many developed countries, but confirmed 'rates would remain low for some time'!

The RBA named threats from continued high household debt and a strong currency, which allowed the currency to soften and trade 0.7830. The soap opera starring Winston Peters and NZ First continues.

Market Commentary - Oct 17 - Quiet uncertainty

A quiet start to the week, with little economic data being released globally, although many Geo-Political events threaten. China CPI drifted lower, to 1.6%, hitting growth prospects and commodity demand. This translated directly in to the associated currencies, with the AUD drifting back to 0.7850, while the NZD slipped to 0.7160.The AUD awaits Consumer Confidence data this morning, while the NZD will be impacted by CPI numbers, still all awaiting a decision on the Government.

Geo-Political events threaten around the world, with Catalan independence coming to a head Thursday, while PM May heads to Europe to break the Brexit deadlock. The EUR slipped under 1.1800, while the GBP traded 1.3240, whiplashed by Brexit speculation. In the US there is always action, with Trump in charge, as he campaigns for the all-important tax reform and NAFTA re-negotiations.

The NAFTA re-negotiations are central to the Mexican and Canadian economies, thus driving their currency movements, reflecting the impact this trade agreement has on their economies. This has been the Trump trade doctrine, fair trade, which has dominated his global attitude to trade.

Local NZ trade will continue to be dominated by the 'Kingmaker' and speculation over the direction of the NZ Government?!

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