Since last week’s strong update the Kiwi dollar has had a relatively neutral week this on the back of some mixed domestic data and weaknesses with some of the other major currencies. In the last week the NZD/GBP and NZD/EUR have performed the strongest as both regions struggled with poor manufacturing results while losing ground slightly against the NZD/USD, NZD/AUD and NZD/CAD.
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After a strong week of gains against most major currencies last week, the NZD has struggled for momentum to push even higher as domestic results continue to keep traders and investors wary of underlying weaknesses in the NZ economy.
The latest NZIER business confidence survey released this week showed that 31 percent of NZ business owners expect economic and trading conditions to deteriorate in the coming months, dropping to levels not seen since the depths of the global financial crisis a decade ago. These results aren’t new, confidence surveys have been up and down since 2016 as business owners and consumers alike come to terms with a volatile international trading environment, slowing domestic growth and dropping interest rates.
With the RBNZ not scheduled to meet for another month there is plenty of time for good and bad domestic and international data to keep the heat on the Central Bank. Even though New Zealand is now in its 10th consecutive year of economic growth GDP numbers, manufacturing and exports have taken a hit due to the ongoing Trade War and the RBNZ is looking increasingly likely to drop the cash rate below the current mark of 1.5%.
The RBNZ have made clear their goal is to stimulate spending when it’s needed and a further rate cut will help to make NZ a more attractive destination for foreign investment and boost those exports back up.
There are a few key pieces of information due on the data front before the RBNZ meet on the 7th of August with REINZ house sales, electronic retail spending and manufacturing results sure to keep the RBNZ on their toes. If these releases don’t show a clear uptrend or imminent rises on the future, expect the RBNZ to drop interest rates once again.
It’s been another week of more of the same in the UK, with Conservative leadership contenders Boris Johnson and Jeremy Hunt doing the rounds to convince their peers of their Brexiting credentials. While both men have said they’d prefer not to have a No-Deal Brexit, they have both left the door ajar for that possibility if a satisfactory deal can’t be reached before the October 31st deadline.
There is also the growing possibility that the Bank of England will look to lower interest rates in the face of increasing US/China and UK/Euro trade uncertainty and the lowest manufacturing data in a decade.
As a result, the GBP/USD, GBP/NZD and GBP/AUD all performed weakly for the Pound and with no major data releases on the horizon, the currency will remain at the mercy of political and Brexit developments in the UK for the short term.
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It was slow going for the USD overnight with US equity and bond markets closed due to the US Independence Day holiday.
The Trump-Xi trade war truce from last weekend’s G20 summit has done little to allay the fears of markets and traders around the world. Weak manufacturing output and lower than expected job creation data released this week also served to keep the USD under pressure and the upcoming speech of Federal Reserve Chairman Powell is likely to be key for AUD/NZD in the short term.
If he indicates that a cut in July is unlikely, the Kiwi dollar might be brought back from its recent gains. But if Powell gives the indication of 1 or even 2 rate cuts by the end of the year, the NZD/USD may be able to continue its recent positive run.
A number of US banks have released internal research pointing to the fact that the US dollar may be overvalued by 10-13% at the moment. This could lead to further pressure being added to the Federal Reserve’s plate with President Trump now explicitly calling for a weaker US dollar in response to the moves of other Central Banks. The following tweet sums it up pretty well:
“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games - as they have for many years!”
He doesn’t miss, that’s for sure.
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