For a moment on Wednesday afternoon it looked like the NZD would run the foreign exchange gauntlet successfully and come out of the US Federal Reserve decision to cut interest rates by only .25% unscathed, but alas, it was not to be. The NZD was ranked 2nd out of the top G10 currencies mid-week, only to suffer along with the AUD after the Fed’s decision.
Since last week the NZD has taken losses against the USD, JPY, EUR, CAD and SGD but in some good news, has performed strongly against both the GBP and the AUD who have had their own dramas this week. So, if you’re thinking of heading across the ditch or watching England beat the Aussies in cricket again, now might be a good time to grab those GBP and AUD you’ve been eyeing off.
It’s been more of the same this week with déjà vu running wild with Brexit, US/China trade tension and a US Federal Reserve looking unwilling to go too far on the rate drops causing a few headaches for the NZD.
Weaker than expected domestic data, with business confidence, investment and exports looking shaky is also keeping the NZD subdued against the big currencies. At the June RBNZ meeting the market was warned that continued “subdued business sentiment” would dampen domestic spending and see the need for lower rates. With the RBNZ meeting fast approaching, many are expecting the NZD to take a bit more of a hit too.
It looks like the UK are really stashing the cash for a rainy no-deal Brexit day possibility on October 31st; doubling the emergency fund for things like extra border security, easing traffic congestion in border towns and tackling queues created by delays at the borders. That takes the total fund up to £4.2bn!
This comes after Bojo’s fresh chief secretary to the Treasury, Rishi Sunak, said Britain would "hopefully" leave the EU by 31st October. The European Union has told Britain’s new Europe adviser the Brexit “withdrawal agreement is not up for re-opening.”Halloween could really be coming to the UK this year.
The Bank of England has made an ominous warning that the UK faces the prospect of a "one in three chance" of a recession even if there is a smooth exit from the EU. The Bank said the possibility of a weakened future trading relationship with the EU will slow the economy down over the coming years even if there is an orderly Brexit.
The Pound responded by falling to a new two and a half year low against the USD. The NZD gained some good ground against the GBP though, with markets still unsure about Brexit and trading issues.
As expected by the market, the Fed cut the cash interest rate by 25bps at its July meeting. The key message though was from Chairman Powell in the press conference when he stated this was “mid-cycle adjustment” and “not the beginning of a long series of rate cuts”. This caused The USD Bulls to come out hard, with the Greenback rising against most major currencies and chalking up more gains against the NZD.
The labor market in the US is still regarded as strong and economic activity has been rising at a moderate rate along with growth in household spending. The key trigger point moving forward turns back to US/China trade and global trading conditions, both of which have the ability to cause a rise or drop in the USD depending on the tone of Donald Trump’s tweets.
Speaking of Donald’s tweets, just as things were looking a little rosier on the trade front, the President went and tweeted that the US would begin “putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country.” For a trade dependant currency like the NZD, it’s 2 steps forward and 1 step back when that’s the message that’s being delivered to the markets.
The NZD could be in for some shaky times against the USD in the short-term, with the RBNZ tipped to cut rates at the next meeting. Make sure you’re staying up to date with currency forecasts and Donald’s tweets so you don’t get caught out!
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