Collinson FX: September 6, 2018 - NZD steady below .6600
by Collinson FX 5 Sep 2018 15:51 PDT
6 September 2018
Black Jack chases on Wild Oats XI's hip - Hamilton Island Race Week - Day 6 © Richard Gladwell
Collinson FX: September 6, 2018 - AUS GDP lifts
Markets meander along awaiting evolution of the ongoing trade negotiations. Canada has resisted complying to certain demands of the US, with the PM Trudeau showing continued fight, but he is swimming against the tide. Canada loves to play the politics but cannot afford to walk away. Chinese tariffs are due, this coming week and would raise the temperature. The global war has become regional and resistance is futile. The US will win this battle but the war is long-term.
Australian GDP beat expectations, rising 0.9% (expectations 0.7%), while the annualised number hit 3.4% (expected 2.8%). The was greeted with open arms by markets, with the AUD jumping back above 0.7200, although upon consideration the currency fell back to 0.7170. Much of the overtly strong economic performance is built on record immigration levels and this will probably be sacrificed for political purposes. NZ commodity prices contracted, while the NZ Dollar held below 0.6600, aiding the terms of trade. EU data was static, with Services and Composite PMI soft, while Retail Sales contracted 0.2%. The EUR traded around 1.1600, while the GBP regained 1.2900, continually buffeted by ‘Brexit’ worries.
Trade remains the driver of markets.
Collinson FX: September 5, 2018 - More Trump tarriffs
Trade continued to dominate markets, with the Canadians holding out, while Trump says NAFTA is no longer necessary and he would terminate if necessary. The heat is on the Canadian negotiators, while previously distracted by the politics of the Canadian Foreign Minister and PM, a certain time constraint may push them to swallow the poison pill. The Trump administration is scheduled to impose a further $200 Billion in tariffs upon China. This increases the pressure on the Chinese to deal.
The flows to safety and reward support the Big Dollar, with the EUR slipping to 1.1575, while the GBP drifted to 1.2850. The RBA left rates unchanged, confirming strong economic growth and employment, while warning of the risks of household debt and consumption. The out of cycle rate rises were recognised, but associated with still relatively low interest rate levels. The AUD regained 0.7200 after the rate announcement, but slipped back to 0.7170 in overnight trade, while the NZD fell below 0.6550.
The weaker commodity currencies have been a victim to the global trade uncertainty, while aiding the terms of trade. Rising household debt and cost of funding are a major concern. Trade is likely to reconcile.
Collinson FX: September 4, 2018 - A quiet weekend
The US markets were quiet during the long Labor Day weekend. The global trade overshadowed the risk-on, record equity levels. The US/Canada leg of the ex-NAFTA trade agreement stumbled on Friday, after an off the record statement by Trump was released. Trump was reported to have said, ” it’s going to be so insulting they’re not going to be able to make a deal”, which did not assist closure. The Canadians have little choice and will cave. The safety, that is the Big Dollar, was the beneficiary. The EUR fell to 1.1620, while the GBP slipped back to 1.2870, reversing recent gains.
The RBA will leave rates unchanged again, but may address the recent weakness in the currency, following the disruption triggered by an out of cycle rate rise by Westpac. This triggered a run on the AUD, which fell below 0.7200, as markets consider the massive debt levels and the consequences of a rate rise on debt servicing. The RBA statement may offer some reassurances, but it could possibly outline the risks, which could further destabilise the currency. The NZD looks to be testing 0.6600, on the downside, undermined by last weeks dreadful business confidence number. These commodity currencies remain extremely vulnerable to global trade wars.
The US has promised a further $200 Billion of annual tariffs on the Chinese and Trump has also suggested a US withdrawal from the WTO. These variables offer only uncertainty to trade exposed countries and currencies.
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