Collinson FX: August 31, 2018 - Govt policies hit NZD
by Collinson FX 30 Aug 2018 22:51 BST
29 August 2018
Hamilton Island Race Week 2018 - Multihull Div 1 Ave Gitana © Crosbie Lorimer
Collinson FX: August 31, 2018 - Govt policies hit NZD
Global markets are consumed with the trade narrative while local markets reflect local issues. US equity markets have surged to record levels as the international trade environment improves. The US and Mexico have joined the EU in signing trade agreements to welcome free, fair and reciprocal trade. The focus is on a reduction in reciprocal tariffs to encourage more balanced trade. Canada has until Friday to join their old NAFTA partners, although failed grandstanding by the Canadian PM and Trade Minister, have not helped. China remains the outlier, lobbying the US to drop the pending $200 Billion tariff threat, but the US will keep the pressure on. China will cave and global markets will be the major beneficiary.
Emerging markets are a global threat, with the Argentine Peso collapsing, while interest rates hit 60% and failed to contain rampant inflation. The Argentine monetary crises is a product of overwhelming foreign currency debt and financial mismanagement over many years. The present Government has worked with the IMF on solutions but panic is setting in. This comes on the back of problems in Turkey and Brazil. This lead to safety flows back to the Dollar, with the EUR slipping to 1.1650, while the GBP held 1.3000.
Another devastating NZ Business Confidence number (-50.3), puts the business confidence level back to recession levels, from the GFC in 2008. The Labour led Government anti-energy, anti-business policies are being reflected in business sentiment. This hit the currency hard, falling back to 0.6625, while the AUD has fallen to 0.7250. The AUD has suffered directly from an ‘out of cycle’ interest rate hike from the Westpac Bank. This has manifested in rising interest rates in the wholesale funding market, which implies rising risk.
Trade remains the macro narrative although local issues will impact local currencies.
Collinson FX: August 30, 2018 - Revised trade agreements work for US
US equity markets continued to smash record highs, driven by market confidence, as global trade wars dissipate. The revision of US trade agreements, which produced massive trade deficits for the home nation, look to be on the verge of success. The previously terrible agreements resulted in massive trade deficits and destruction of local manufacturing. The EU and Mexico have caved, with little choice, due to the massive imbalance. Canada and China are the next to surrender and it will happen sooner, rather than later. The EUR held 1.1700, while the GBP spike above 1.3000, after EU trade negotiators offered the prospect of a compromise Brexit deal.
The AUD lost ground, testing 0.7300 on the downside, after local Westpac Bank raised mortgage rates outside of the RBA monetary cycle. The rate rise signals risk and the massive mortgage debt could further weaken consumer spending. If this rate rise spreads to the other major banks a crisis could be in the offing. The NZD was steady, trading above 0.6700, enjoying a softer reserve.
Collinson FX: August 29, 2018 - Record highs in US
US Equity markets continued to beat record highs, buoyed by global trade deals, improving market sentiment and confidence. The new deal between the US and Mexico has now enabled markets to look past the biggest threat to global economic performance. The biggest single threat, cited by economists and Central Bankers, has been the threat of global trade wars. Europe and Mexico have now come to the party, confirming agreements for fair, free and reciprocal trade. It will not be long before the Canadians and Chinese cave. Their negotiating positions are weak and the pressure is massive.
US consumer confidence hit the highest level since 2000! The Richmond Fed Manufacturing Activity also came in strongly, while the S&P Case Shiller Home Price Index remained positive. All the good economic news has not been missed by markets. The Fed is feeling the pressure from the Administration and allowing monetary policy to settle, releasing pressure on interest rates and the Big Dollar. The EUR regained 1.1700, while the GBP attempts to regain 1.2900, mired in Brexit speculation.
The NZD was a beneficiary of the softer reserve, regaining 0.6700, while the AUD trades around 0.7350. The Australian dollar has suffered the political turmoil of the previous week and looks to regain some momentum, as the dust settles and the new regime establishes its bona fides.
Collinson FX: August 28, 2018 - US kisses and makes up with Mexico
US and Mexico signed a historic new trade agreement, leaving behind NAFTA and Canada, solving yet another major problem in the global trade war. This follows the agreement with the EU and pours massive pressure on China and Canada. This is a huge boost for Trump and the USA. The Dollar continued to drift lower, following the fallout from Jackson Hole, which allowed the Dollar some leeway. Fed Chair Powell made a dovish monetary policy speech, which continued to back interest rate rises, recognising that there were no signs of ‘inflation accelerating’.
The EUR rallied towards 1.1700, while the GBP approached 1.2900, feeding off the weaker Dollar. The PBOC supported the Yuan with some new regulation, which is a step in the right direction, from the perspective of currency wars. The AUD settled around 0.7340, after a massive week of political disruption, hoping a new leadership will calm the political storm. The NZD approaches 0.6700, supported by a softening reserve, rather than local economic data.
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