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FX Update

Worldwide coronavirus cases surpasses 7.5M with over 423,000 deaths officially reported.

The Federal Reserve policy was unchanged maintaining its 0% to 0.25% rate in a vote 10-0 in favour. In a similar reading to April the dovish tone filtered through from Powell given how far off the target mark the economy is tracking with employment and inflation. Powell said making similarities to the Great Depression is a “bad analogy” – while second quarter economic data is the worst on record there are “so many fundamental differences” including a strong economy and healthy financial system prior to Covid-19 lockdown. Although the virus looks to recede a second wave is likely. Although the Fed made note to the improving financial conditions which has limited the need for further QE action in the short term, they clearly will rely on whatever is necessary with unlimited options at their disposal. They will continue with the 80B per month bond buying program. Fed forecasting puts GDP at -6.5% in 2020, 5% in 2021 and 3.5% in 2022. Unemployment is not as bad as previously speculated with figures to peak this year at 9.3%, 6.5% in 2021 and 5.5% ending 2022. The current tone should support further risk buying across the globe with the New Zealand Dollar and Australian Dollar forecasted to push higher yet.

The New Zealand Dollar has been the strongest currency from the majors in June, outperforming against the US Dollar by over 5.0%- the weakest currency.
It’s difficult times for traders currently as the overall fundamental components in many currency pairs are showing signs of massive sell’s – but on the charts it’s the other way around with indicators suggesting these are good times to buy. It’s becoming quite alarming how wide the disconnect has become between the fundamentals and technicals. There are things brewing in the background which is making us nervous. Things are certainly not looking prosperous out there.

Key Points…
The New Zealand Dollar fell below the 200 moving average for the first time since 19th May
1.5M Americans filed for unemployment to the week ending 6 June
EU and UK have agreed to ramp up the timetable for Brexit trade talks
US equity markets declined sharply – the DOW is down over 6% overnight and the Nasdaq 5.0% after closing at a record high yesterday over 10,000

Market Update

Worldwide coronavirus cases surpasses 7.1M with over 405,000 deaths officially reported.

It was a week of quiet economic headlines with the New Zealand Dollar taking out the top spot as the best performing currency. Risk on sentiment has driven the kiwi to fresh highs along with a number of other reasons, the main one perhaps of which is due to NZ having no new coronavirus cases over the past two weeks with the one person who had the virus recovering yesterday. So formally NZ has no coronavirus.  Re-opening trade and business has also gone a long way for boosting the mood along with recent Chinese Manufacturing data coming in better than expected. Yesterday’s Trade Balance – surplus of 62B as exports fell less than expected due to medical related purchases. Certainly markets seem to be focused on these factors rather than the continued US/China trade tensions and mass US protests taking place around the world. 

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Market Update

Day 23-  Level 2 NZ lockdown.

Worldwide coronavirus cases surpasses 6,400,000 with over 380,000 deaths officially reported.

A string of terrible American data releases has worn down the US Dollar recently with the US Dollar Index falling to below 98.00 Wednesday. Unemployment numbers continue to rise with another 2.1M people filing for unemployment. Prelim GDP for the first quarter 2020 was down -5.0% and the University of Michigan Consumer Sentiment index took a hiding. Equity gains in Europe extended to US markets despite the ongoing trade tensions between the US and China and civil unrest from the death of George Floyd. Risk sentiment has been unfaltering, improving sharply Friday after President Trump’s threats to China regarding the situation in Hong Kong. Poor vaccine trials are also hitting the wires but have had little effect on the rise of the New Zealand Dollar and the Australian Dollar over the past few days. It could be said that with only 1 person in NZ recovering from the virus at the moment and very few new cases out of Australia both countries are starting to be seen as safe haven assets. Further unrest in the US with Trump threatening to mobilise the National Guard to confront protesters, and general wide scale unemployment with alarming numbers of new coronavirus numbers should see market conditions and sentiment remain low in the USA for a while with a US recovery looking a long way off. 

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Market Update

Day 10-  Level 2 NZ lockdown.

Worldwide coronavirus cases surpasses 5,900,000 with over 361,000 deaths officially reported.

New Zealand Job numbers fell by a record 37,500 in April showing the fallout of lockdown throughout most of April and the impact of Covid-19. This represents the largest drop since records began in 1999. The biggest decline was in the service and primary industries with significant drops in accommodation and food services. The alarming aspect of these numbers is that we won’t know the true extent of the damage to the economy until well after the wage subsidy ends with a further dire outlook to transpire. In recent weeks we have seen many large companies chop jobs such as Air New Zealand, Fletcher Buildings, Sky City and Copthorne Hotels with the Reserve Bank of New Zealand expecting the unemployment rate to top out at 10.0% by the end of 2020.

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Market News

Day 10- Level 2 NZ lockdown.

Worldwide coronavirus cases surpasses 5,500,000
Quiet start to the week with national holidays in both the US (Memorial Day) and the UK (May Day Bank holiday) with currencies trading in narrow ranges.
With little in the way of data releases over the week attention will focus on the gradual reopening of US and European economies and concern over the rising tensions between China/US which appears to be heading towards a full scale trade war.
Over the weekend, China condemned the U.S. adding 33 Chinese entities to a trade blacklist, a move that risks potential retaliation from Beijing as the relationship between the world’s two-biggest economies deteriorates further.
The renewal of protests in Hong Kong also bought comments from China’s Foreign Minister Wang Yi , who on Sunday warned U.S. politicians were pushing relations to a “new Cold War,” as American politicians condemned Beijing’s move to impose a national security law on Hong Kong-look for Hong Kong to become the catalyst for more escalation of Sino/US tensions.
Also in this mix closer to home, are the tariffs that China is looking to impose on Australian barley exports and curtailing of beef imports as a precursor to further imposts if Australia continues promoting the call for an independent investigation into the origins of the coronavirus outbreak. Any escalation of such moves would have serious implications for the Australian recovery and further pressure the AUD.
A blowback to the New Zealand economy would be detrimental to NZD levels.

Global equity markets are higher, with optimism on economies reopening outweighing current US-China tensions
German Ifo business confidence rebounded in May, the headline measures beating expectations.
NZ April trade balance shows surplus of $1267m, largest surplus on record ,due to slump in imports. (expected 1235m NZD )
Head of the Central Bank of France & ECB Member Villeroy , signalled further potential easing, saying the ECB “will very probably need to go even further”.

Economic Releases

Monday 25/05

  • All Day, GBP, Bank Holiday

Tuesday 26/05

  • All Day, USD, Bank Holiday

Wednesday 27/05

  • 9am, CAD, BOC Gov Poloz Speaks
  • 9am, NZD, RBNZ Financial Stability Report 

Thursday 28/05

  • 130pm, AUD, Private Capital Expenditure q/q
    • Forecast -2.70%
    • Previous -2.80%

Friday 29/05

  • 1230am, USD, Prelim GDP q/q
    • Forecast -4.80%
    • Previous -4.80%

Saturday 30/05

  • 1230am, CAD, GDP m/m
    • Previous 0.00
  • 3am, USD, Fed Chair Powell Speaks

FX Update

Day 6-  Level 2 NZ lockdown.

Worldwide coronavirus cases surpasses 5,000,000 

New Zealand’s growth rate (GDP) is forecast to decline from the 2.8% year ending June 2019 to -4.6% to the year ending June 2020. This is driven by a massive fall in the second quarter 2020 coronavirus fuelled downturn of somewhere around 20.0%. The RBNZ are forecasting growth to return into the positives in the 3rd quarter (September) 2021. So that’s 5 economic quarters we could see the New Zealand Economy weighed down by the virus implications before a proper recovery. Unemployment is expected to rise to over 8.0% in the June quarter 2020 peaking around 10.0% in the 3rd quarter 2021. This is in comparison to Australian economic growth (GDP) which is expected to decline by around -12.0% in the June 2020 quarter followed by -7.0% in the third quarter and -6% in the fourth quarter 2020. A rebound of 6.0% growth is forecast in the third quarter 2021. Australian Treasury Secretary Kennedy said when asked about an Australian recession- “we’ve gone well past” a recession. I’m not sure if he is looking at the same balance sheet with Australia expected to formally slip into recession later this year.

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