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FX Update

Worldwide coronavirus cases surpass 41.9 million with over 1,142,000 official deaths.

Deep into weekly trading, markets seem to be hanging off developments in the US Fiscal stimulus negotiations for answers. Movement has been all about where things lie in the negotiations, late Thursday things seem to still be up in the air with investors mostly positive the situation should end well. Over the past few sessions the US Dollar weakened as the Democrats and Republicans drew nearer to a second massive fiscal agreement to assist US businesses and households get through the coronavirus pandemic. Risk markets have been up and down, equity indices fluctuating as Treasury secretary Steven Mnuchin and Nancy Pelosi headed into the latest round of discussions. Headline news reports that negotiations are moving in a favourable direction. The kiwi and Aussie currencies recovered off recent lows, but the way things have been going this week a risk off mood can develop very quickly should negotiations take a turn for the worst.  

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NZ Election brings no surprises

Worldwide coronavirus cases surpass 40.6 million with over 1,100,000 official deaths.

An increase in coronavirus cases around the planet, the stalemate by US government negotiators around the fiscal stimulus package, and Brexit negotiations have all weighed on investor sentiment last week and into Monday trading.  

The New Zealand Labour government has won and won big. The centre left party has been triumphant in a landslide victory, the biggest swing to an incumbent government ever seen. Labour was predicted to win roughly 61 parliamentary seats but it looks like they could end up with several more as voting is confirmed in the 120 seat parliament. Labour if they choose can now form a single party majority government – it will be the first one since 1990 when Jim Bolger led the National Party to victory over Labour’s, Mike Moore that a single party non coalition government has been formed. The “Jacinda factor” has no doubt played a massive part in the way people have voted, the way she has come across in the media when dealing with Covid-19 and recently the Christchurch mosque shootings. 

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FX Update

Worldwide coronavirus cases surpass 39 million with over 1,100,000 official deaths.

With reports surfacing on a potential bullish USD over the coming months and negative rates almost a dead cert for the RBNZ to come late 2020 or early 2021 it’s hard to strategize a bullish New Zealand Dollar mid to long term. I’m not so sure much of this mindset or view is priced into the curve, giving weight to a potential underperforming and heavy reversal in store for the kiwi. US Fed member Quarles said this week that negative rates have outweighed its potential benefits. So a shift into negative territory is off the agenda completely. This opens up debate for investors to consider the “carry trade” which involves borrowing the cheaper currency and investing it in a higher yielding one, alas the US Dollar. It’s hard to know what the RBNZ has in store when they talk of negative rates but it’s most likely to be in the -0.25% -0.50% range.

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US Holiday subdues currency markets in leadup to NZ Election

Worldwide coronavirus cases surpass 38 million with over 1,084,000 official deaths.

US holiday Monday with Columbus Day made for a slow start to the week. 

We are just four days away from the general election in New Zealand on the 17th October. There are no economic announcements locally this week so movement will be in inches not feet. Traditionally around election time financial markets tend to not react a whole lot. With polls suggesting a return to power for the Labour Party and the Greens the likely coalition partner we may not get too many surprises. Markets tend to be way more volatile in a situation where another scenario presents itself. Of course the Labour party could also govern alone. If coalition negotiations take a while to conclude we could also see markets bounce around depending on the outcome. Over the past election results we have seen the kiwi react positively to a National led government and negative to a Labour government, we shall see.  

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FX Update

Worldwide coronavirus cases surpass 36.7 million with over 1,066,000 official deaths.

Midweek risk appetite turned soft following comments by President Trump via twitter regarding the 2016 election involving Russian interference and rather importantly, no stimulus package until after the 2020 November election. Trump said to the media “I have been instructed by my representatives to stop negotiating until after the election”. The comments sparked a sell off in equities as the kiwi and Aussie currencies fall away sharply. The confusion over the potential stimulus package then took a U turn with Trump confirming he would in fact support targeted relief early during Thursday sessions in the form of individual stimulus to airlines of $25 Billion payroll support and another round of $1,200 to all American taxpayers. Markets again changed course with risk assets recovering losses, the kiwi lifting across the board. 

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FX News

Worldwide coronavirus cases surpass 34.4 million with over 1,022,000 official deaths.

Risk sentiment improved overnight with the outlook around a coronavirus stimulus package nearing an agreement from the US government. Certainly, from earlier in the week things have improved contributing to rebound in mood with equities and risk products receiving support. We’re not quite out of the woods yet but investors are feeling a lot more positive. For months the senate has been against further economic relief, US Senate leader McConnell has said that if Pelosi and Mnuchin agree on a deal they will “take a look” with both Republicans and Democrats wanting to lock in a relief deal prior to the US Elections. Price action has seen a drop in buyers exiting the safe haven greenback putting it under pressure. This has been the main item driving global currencies over the week.   

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