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Collinson FX: Nov 11, 2019 - US high as NZD retreats

by Collinson FX 10 Nov 02:55 PST 10 November 2019
Wired - PIC Coastal Classic - Start - Waitemata Harbour - October 25, 2019 © Richard Gladwell / Sail-World.com

Collinson FX: November 11, 2019 - US high as NZD retreats

US equity markets achieved record highs, as economic confidence flourished, with the prospect of a US/China trade deal became more certain. The overwhelming macro-economic issue, that has dominated markets, is the US/China trade war/deal. The US economy continues to outperform and corporate earnings continue to beat expectations. Equities are challenging record highs almost daily and demand has surged, pushing commodity prices higher, along with US Bond Yields.

The RBA and Bank of England both resisted the temptation for further rate cuts, as economic sentiment rallied strongly, with the impending US/China Trade deal. The Australian economy has been challenged by the US/China trade war, which has threatened the existing global supply chain, but the détente now seems anon. The RBA was neutral to hawkish, about economic prospects which has been enhanced recently. The details of the deal may be far more damaging to the supply chain, as China switches to US suppliers, from existing Australian and NZ exporters?

The strong economic sentiment has bolstered US Bond Yields and the Dollar. The EUR has slipped back to 1.1020, while the GBP has fallen back to 1.2750. The Yen has weakened, to trade 109.20, with little local economic progress. Commodity currencies have been severely impacted by the US/China trade war, but recent progress, has allowed some support for the associated currencies. The rising reserve has allowed the downward pressures to resume, with the AUD falling below 0.6900, while the NZD has retreated to 0.6320.

Interest rate differentials are now driving the overall directions of currencies. The US Dollar has a premium in interest rates that reflects economic performance, not risk, which dictates further downward pressure on the commodity currencies.

Collinson FX: November 8, 2019 - Tariffs to be cancelled?

US equity markets charged to new record highs, once again, supported by growing confidence over the prospects of the US/China trade deal. Chinese officials announced that tariffs would be cancelled and not just suspended, in the ‘phase one’ deal, lighting up market confidence. US Bond Yields spike to 1.928%, in the ten year, reflecting the demand on money and the move towards equities. Gold prices also tumbled, while the demand for Oil jumped, trading up to $57.50. The Dollar also rallied boosted by the higher yields, with the EUR trading 1.1040, while the Yen moved to 109.40. The GBP also slipped to 1.2820, as the Bank of England declined any chance to cut rates, reticent during the Brexit election.

The rising reserve was overwhelmed by the growing economic confidence emanating from the US/China trade deal, which allowed the AUD to regain 0.6900, while the NZD was caught in irons. The NZD has suffered the negatives and enjoyed improved recent economic data releases, but this has lead to speculation that the RBNZ would become more hawkish on monetary policy, thus allowing the NZD to fall back to 0.6350. US/China trade remains the key driver on markets.

Collinson FX: November 7, 2019 - Kiwi unemployment up

US equity markets came off record highs, after reporting that the US/China trade deal would be delayed, until December this year. The possible delay has lead to negative speculation surrounding the confirmation of the deal. The ‘phase one’ US/China trade deal is crucial to markets sentiment and negative speculation does have destructive consequences for markets. European markets have been blessed with some positive economic news, with Services/Composite PMI data coming in stronger than expected, while Retail Sales also showed some improvement. The EUR traded 1.1060, while the GBP slipped back to 1.2850, buffeted by the fire of the Brexit election campaign.

NZ Unemployment numbers were worse than expected, with the headline number rising to 4.2%, but the labour market remains strong and this may be just a correction. The NZD traded above 0.6350, while the AUD drifted back to 0.6875, unsettled by a stronger reserve. The US/China trade deal remains key to market direction, as long as the deal is signed and sealed, equities will continue to test record levels. The stronger Dollar is reflecting the interest rate differential and the RBNZ may consider extending this disparity, with a softer labour market.

Collinson FX: November 6, 2019 - US market confidence soars

US equity markets continued to bubble along at record highs, with soaring market confidence. The US/China trade deal now awaits a venue for the signing ceremony and President Trump has announced further removal of previously announced tariffs. US Jobs data has beaten expectations and economic data continues to be strong. US Non-Manufacturing and Services data beat expectations, reflecting the strong growth and consumer lead demand. The Dollar continues to gain ground, pushing the EUR back to 1.1070, while the GBP drifted below 1.2900.

The RBA left rates unchanged on Melbourne Cup day, as expected, after cutting rates three times since June. Interest rates remain at record lows, sparking a rally in house prices and stimulating a slowing economy. They remain at a substantial discount to the all important US Fed rates, but the lack of action did support a flagging currency. The AUD gained some support at just below 0.6900, while the NZD fell back to 0.6370, reflecting the relative position of monetary policy in both countries.

Trade remains the most important driver of the ‘Macro-Economy’ although domestic data does influence the daily cycle. Central banks and their monetary policies are key to the ongoing currency wars!

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