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Collinson FX: April 2, 2019 - Budget night in Oz

by Collinson FX 2 Apr 2019 04:16 PDT 2 April 2019

Collinson FX: April 2, 2019 - Budget night in Oz

Markets rallied strongly on the back of very positive Manufacturing data out of China and the USA. This combined with the latest completion of trade talks between global heavyweights, China and the USA. The two negotiating teams now head to Washington and look close to closing out a comprehensive deal. US Bond Yields bounced and the Dollar was steady. The EUR trades around 1.1200, while the GBP pushed back to 1.3120, mired in Brexit chaos.

The NZD held around 0.6800, while the AUD regained 0.7100, ahead of tonight's budget. The budget is the ultimate election budget, as it signals the beginning of the election campaign. The Government is set to announce the first budget surplus since the Howard/Costello Government, in an attempt to fight the election on it’s financial credibility. They are a long way behind in the polls and need a miracle. Labor will give them plenty of targets with their green credentials and higher taxes, but the Liberal/National coalition has proven inept and show little unity.

Collinson FX: March 29 2019 - NZ Business confidence plunges

US equity markets continue to build, supported by economic data. US GDP came in at 2.2%, slightly lower than expected, but still healthy compared to global competitors. Global growth prospects seem to be centred around the US/China trade talks, which resumed overnight, with US Treasury Secretary Mnuchin and key negotiator Robert Lighthizer back in China to close out negotiations? An agreement is close and all the rhetoric is positive, so expectations are high. US Bond yields have come back into focus, as the 10 year bond yield has moved steadily lower, (trading 2.34%), flattening the yield curve. The worry is the prospect of the dreaded ‘inverse yield curve’ which suggests a looming recession.

Brexit chaos continues, unabated, unsettling European and UK markets. The UK Parliament took up the challenge and proposed eight potential options. They failed to agree on all eight! The PM has agreed to step aside, if her twice rejected agreement is accepted, but the impasse and turmoil continues. The Parliament cannot achieve the Brexit the people demanded because they fundamentally do not agree with their constituents. It may lead to another election or worse? The GBP fell back to 1.3050, while the EUR drifted to 1.1230.

NZ Business Confidence plunged once again, falling to minus 38, a sad reflection of the business cycle and Government threats of a Capital Gains Tax. Business does not seem enamoured with the prospect of increases in taxes for some reason? This follows the RBNZ moving to a more ‘dovish’ Monetary Policy stance, observing weaker economic prospects and ever increasing global growth threats. This resulted in further monetary stimulus, to fight upward pressure on the currency, from other global Central Bank action. RBNZ Governor Orr speaks again today and he will be quizzed on current domestic economic conditions and the global threats that have influenced his change in direction. The NZD remains weak and trades below 0.6800, while the AUD fell below 0.7100, seemingly preoccupied in the looming election.

Collinson FX: March 28, 2019 - No change from RBNZ

Markets continued down a well trodden path, with Europe consumed by the Brexit quagmire, while the US markets consider the US/China Trade deal and the impact on global growth. The UK Brexit ‘slow motion train crash’ continues on, with the UK PM May admitting she will resign, once Brexit has been achieved. The thoughts are that her Conservative Party will agree to her twice rejected deal, on condition she resigns, thus allowing a new negotiating team to re-negotiate her dreadful deal. It is a complete disaster, as Parliamentarians fight the wishes and demands of the people, amid complete Parliamentary chaos. The GBP traded 1.3230, while the EUR slipped to 1.1250, as ECB President Draghi warned of downside risks.

US markets were steady despite the chaos across the Atlantic. It appears that a US/China trade deal will emerge from the extended negotiations, while global growth prospects continue to plague markets. The RBNZ left rates unchanged, but surprised markets by signalling the next rate move, may well be down. The RBNZ warned of the global growth risks and the weak domestic market, highlighted by sustained poor business confidence and domestic growth. The rhetoric took the markets by surprise and the currency crashed a big figure. The RBNZ warned that globally Central Banks had been ‘dovish’ on monetary policy, thus adding upward pressure to the NZD, which immediately reversed the current form. The NZD plunged from above 0.6900, to below 0.6800, while dragging the AUD back below 0.7100.

Brexit and Central bank activity continue to dominate global markets.

Collinson FX: March 27, 2019 - Kiwi holds .6900

US Markets continued to recover, slowly, still hampered by concerns over global growth worries. US Economic data releases were soft, with falls in Housing Starts and Building Permits, while House Prices held up well. US Consumer Confidence fell and the Richmond Fed Manufacturing Report was negative. Despite the weak economic data, markets remained positive for the second day running, enjoying increased political stability post the ‘Mueller Report’ release. There have been concerns that the flat yield curve in the US may invert, signalling a recession, but the 10 Year regained some ground supporting the Dollar. Oil also test $60/barrel, while the EUR fell back to 1.1280 and the Yen moved to 110.40.

Commodity currencies have enjoyed some support, with the AUD pushing back to 0.7140, while the NZD held 0.6900 ahead of the OCR today. The RBNZ is unlikely to move rates or signal any change in monetary policy, although rhetoric is likely to reflect global growth concerns. Australian Consumer Confidence was flat but recent economic data has been strong. The US/China trade talks remain the key driver to the trade exposed currency moves.

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