Collinson FX: May 12 - Orr gives reality check

by Collinson FX 12 May 2018 23:14 AEST 13 May 2018

Amelia Stabback and Ella Clark - Oceanbridge NZL Sailing Regatta 2018 © Pedro Martinez

Collinson FX: May 12 - Orr gives reality check

The Iranian crises continues to expand, as Israel responds to Iranian missiles, with attacks on Iranian bases in Syria. The US withdrawal from the Iranian nuclear agreement appears to be the trigger and now threatens the Syrian civil war spreading across the Middle East, becoming a multi-denominational conflict. Oil prices have gained some momentum, with the threat of sanctions being reimposed on Iran, boosting energy companies and stock markets.

The Dollar has been steady, with the EUR trading 1.1940, while the GBP holds above 1.3500. The GBP is again at the lower end of its trading range, after weak economic data releases and a dovish statement from the Bank of England. The commodity currencies have been hammered, with the NZD trading 0.6950, while the AUD holding above 0.7500. The NZD came under extreme pressure after a reality check from the new RBNZ Governor.

This coming week has important growth data from Germany and Japan, while US Retail Sales are always an important number, to measure the health of the all-important consumer. Geo-Political issues remain front and centre of the coming weeks trade.

Day 2, Oceanbridge NZL Sailing Regatta, Murrays Bay, February 4, 2018 - photo © Yachting New Zealand

Collinson FX: May 11 - Iran gets antsy

The Iranians have come out aggressively in response to the Trump administrations' withdrawal from the 'Nuclear Agreement'. The Iranians have launched missile strikes into Israel from bases in Syria, aggressively confronting the Israeli/US allies and widening an already dangerous and complex war. The escalation makes an already dangerous situation explosive.

The much-heralded rate decisions from the Bank of England and the RBNZ were in line with expectations. The new RBNZ Governor, Adrian Orr, was complimented on the clear and concise monetary policy statement. The message was lay-mans speak, a move away from previous academic, technical jargon, designed to confuse. He was dovish in his view of the NZ economy and indicated no rate moves for the foreseeable future are likely. The NZD suffered dramatically, falling all the way to 0.6900, only to recover to 0.6950 as the reserve pressure eased. The BofE Governor Carney was also extremely dovish, curbing growth expectations, pushing the GBP below 1.3500 (4-month lows).

US CPI data was softer than expected, easing pressure on interest rates and further boosting an already buoyant stock market. It also allowed the Dollar to take a breather, with the EUR bouncing back to 1.1925, while the AUD pushed up to 0.7530. Oil remains bid, and commodity prices are finding some support, improving prospects for the associated currencies.

Geo-Political issues may direct markets to close a strong week.

Oceanbridge NZL Sailing Regatta, Day 3, February 5, 2018, Murrays Bay SC - photo © Richard Gladwell

Collinson FX: May 09 - Trump withdraws from nuke deal

The big news overnight was the announcement that the US would withdraw from the Iran Nuclear deal and reimpose sanctions. The impact of this is dramatic and has far-reaching implications. The EU has been desperate to retain the agreement, with certain modifications, as universal agreements are extremely difficult. The decision was no surprise as Trump has been an extreme critic. The immediate impact will see pressure on Oil prices, but the related flow-on effect will be more sinister.

The EU has linked the agreement to trade and is set to reignite the looming trade war. Unfortunately for the EU, they are not negotiating from a position of strength. The EU has a massive trade surplus with the US and is very vulnerable to 'reciprocal trade' agreements. The Dollar continued to rally, pushing up to 1.1800, while the GBP slipped to 1.3540.

Commodity currencies have seen their vulnerabilities materialise recently. The AUD crashed to 0.7450, despite a very positive budget, released overnight. The Australian Government has been blessed with 'rivers of gold', regarding revenue from the long suffering tax payer, but they intend to return some! It was a steady budget and has generally been well received, except by the Greens, which is a good sign.

The Iranian deal and the fall-out will continue to dominate markets as the digestion is realised. Markets will look closely at the Central Bank decisions from the Bank of England and the RBNZ. No action is expected, but rhetoric is important and will drive associated currencies. The NZD continues to weaken ahead of their rate decision, trading at 0.6960 and looking susceptible to Dollar strength.

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