Collinson FX: June 6 - RBA sits on its hands

by Collinson FX 5 Jun 2018 20:48 PDT 6 June 2018

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

Collinson FX: June 6 - RBA sits on its hands

The RBA left rates unchanged at 1.5%, in line with expectations, with little change to the associated rhetoric. The good news was the continued GDP growth, around 3%, while wage growth and the Real Estate markets were soft. The RBA cited international risks from trade wars and the growing disruption in Europe. Italy and Spain have caused massive political disruption while the tariff war with the USA adds to the pressure. The AUD jumped, but settled overnight to hold above 0.7600, while the NZD attempts to consolidate above 0.7000.

The G7 meet in Canada this week and trade is likely to be the major topic of conversation. The G7 Finance Ministers met in a prelude and issued a warning statement, excluding the USA, surrounding the growing tariff war. Trump has indicated he may look to bi-lateral trade negotiations with Canada and Mexico, leaving the tri-lateral NAFTA agreement in the past. The pressure is mounting on the USA, but considering the massive trade imbalances, the US are negotiating from a position of strength. The EUR has rebounded back to 1.1700, after solutions look to have been found in Italy and Spain, at least temporarily? Trade pressures remain and Eastern members continue to threaten EU stability.

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

Collinson FX: June 5 - NZD quietly regains ground

US markets continued to prosper, living off the strong employment data, released last Friday. The G7 Finance Ministers met in Canada ahead of the full-blown leaders meeting this week. The G7 Finance Ministers, notably excluding the USA, issued a strong statement warning against tariffs. The retaliatory sanctions imposed by Canada and the EU are a swift and strong reaction. The US maintains that unfair trade practices remain and massive trade imbalances are the result. Trump is an advocate of reciprocal and bilateral trade agreements. The EUR continues to regain lost ground, trading up to 1.1690, but remain at the lower end of recent trading ranges.

US Durable Goods Orders and Factory Orders both contracted, but had little impact, as the macroeconomic picture remains strong. The RBA is set to leave rates unchanged in their latest rate decision. There are no rate rises expected, in the near future, so monetary policy is not expected to change. The Australian Dollar has recovered, from recent record lows, as the fiscal situations has shown signs of improvement. The pressure on monetary policy has been reduced, but the 'bracket creep' that has allowed this increases taxation on the taxpayer, removing capital from the productive sectors. The AUD trades 0.7650, ahead of the RBA meeting, with attention firmly focused on the associated rhetoric. The NZD has quietly regained ground, to break back above 0.7000, as their fiscal situation also stabilises.

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