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Collinson FX: September 20, 2019 - NZD and AUD fall in sympathy

by Collinson FX 21 Sep 06:12 PDT 22 September 2019
Hooligan crew smile for the media boat cameras - Day 6 - Hamilton Island Race Week, August 24, 2019 © Richard Gladwell

Collinson FX: September 20, 2019 - NZD and AUD fall in sympathy

Markets calmed down, after all of the action surrounding the Federal Reserve decision to cut rates, disappointing many with the ‘dovish sentiment’. The Fed’s observations were of a strong economy and with only token assistance from the Federal Reserve. The risks are from the US/China trade war, with conditions improving, as negotiators sat down again. US Existing Home Sales confirmed the increasing confidence in this leading sector. The Bank of England and the Bank of Japan both opted to leave rates unchanged, in line with expectations, but maintained generous monetary policy. The Dollar drifted back to pre-FOMC levels, with the EUR rising to 1.1040, while the GBP jumped to 1.2530. Brexit continues to wreck havoc over UK and European markets, although progress is apparently being made, with a deal in the offing.

Commodity currencies are under the pump and Australian Employment data confirmed a weaker economy, allowing the AUD to crash back below 0.6800, while the NZD sympathetically fell below 0.6300. These trade exposed currencies are extremely vulnerable and remain challenged by developments.

Collinson FX: September 19, 2019 - US cuts rates

The Fed cut rates by 25 basis points, in line with expectations, but with a ‘hawkish’ tone associated with the accompanying commentary was not expected. Chairman Powell was bullish on the economy and this was taken as a hawkish approach to future monetary policy, for the remainder of the year, although clearly outlining action would be taken if necessary. This was positive for US Bond Yields and the Dollar. The EUR slipped back to 1.1010, while the Yen traded 108.50, ahead of the Bank of Japan meeting. The Japanese economy is in bad shape and the latest Current Account numbers, saw a serious contraction of both imports and exports. The BoJ may not cut interest rates, but will probably add QE, to an already massively stimulated monetary system. The Bank of England will also probably leave rates unchanged, despite softer CPI numbers released overnight, struggling through the ongoing Brexit chaos.

US Building Permits and Housing Starts surged to beat 2007 highs, confirming the strength of this leading sector, reflecting the wider economy. The current market has been trading on the Fed and Central Bank actions and speculations. The Middle East and US/China trade remain the macro issue driving markets. President Trump has commanded the substantial increase in sanctions imposed on the Iranian regime, in retaliation for the drone strikes on the Saudi Oil fields. He has also reacted to the hawkish Fed actions by tweeting that ‘the Fed failed again’, adding they had ‘No guts, no sense, no vision’!

The rising reserve hit the commodity currencies hard, with the AUD falling back to 0.6820, while the NZD tests 0.6300 on the downside. These vulnerable currencies face stern domestic tests in today's local markets. Australian Employment numbers are forecast to be steady, but any deterioration would be reflected in the currency, which will be also the case for NZ GDP numbers released this morning.

Collinson FX: September 18, 2019 - Oil prices retreat

Oil prices continued to recover, after the spike, post-Iranian/Yemeni drone attacks on Saudi Oil facilities. Oil prices have now retreated back to $59/barrel and look to be returning to normal, despite higher tensions and possible retaliatory attacks on the Iranian regime. US/China trade talks resume on Thursday, at the ‘deputy’ level, with both sides appearing keen to resolve the impasse and compromise with a possible ‘interim agreement’? Market fears were dissipating and with them the surging Dollar, allowing the EUR to bounce to 1.1060, while the GBP regained 1.2500.

The RBA minutes were dovish and revealed the Banks readiness to cut rates further, as required by global and domestic market conditions. This did little to boost the local currency although the macro picture and the flagging reserve allowed the AUD to regain 0.6860, while the NZD pushed back towards 0.6350. Geo-Political events and the US/China trade talks remains the major risk to markets. NZ GDP and Current account data will probably confirm a deterioration in economic conditions, although the collapse in the Dollar may assist exporters. Testing conditions lay ahead for the volatile commodity currencies.

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