TGIF everyone. Michael Buble has officially defrosted and began singing carols with less than 20 days until Christmas. Have you finished your gift shopping? I haven't. Markets are still powering on despite the upcoming holiday, with Trade War discussions and the UK election reaching their deadlines. General market sentiment has improved, which is excellent news for the Kiwi dollar that thrives in 'risk-on' market moods like this one. With this in mind, one NZD will buy you:
The NZD has improved significantly against all major currencies since last Friday. Make the most of improvements in the NZD by adding Rate Move Guarantee to your purchase in-store. It's free, and if the rate improves within 14 days of purchase, we will refund you the difference*. Now that's what I call Merry and Bright Mr Buble.
Let's take a look at what's impacting foreign exchange markets.
In the USA
The USD saw downward pressure against all major currencies except the Aussie dollar overnight. Why? Well, there are a few reasons:
There is renewed optimism around the trade war between the US and China. Trump has said that things are "moving along well", and China mirrored his sentiment. US negotiators expect a phase one trade deal to be completed by December 15, in addition to scrapping the planned tariff increase on the same day. While this is positive news and has definitely put a positive spin on markets, the Trade War is known for providing some false hope. Long story short, this information isn't set in stone and could change multiple times in the next nine days before the deal is expected to be complete.
Impeachment proceedings against President Trump continue to gather momentum. This definitely would have added extra downward pressure on the USD.
Downside risks to global economic growth have reduced. In other words, the global economy seems to be doing a little better, which means foreign exchange markets are willing to invest more in 'riskier' currencies. The USD is considered to be a safe-haven currency, so it sees a lower demand in a risk-on market like this one.
Tonight all eyes will fall to the release of the US non-farm payrolls data, which essentially shows employment figures for everyone that doesn't work on a farm. Markets expect the US economy to have added 184k new jobs, keeping the unemployment rate on hold at 3.6%. If the data undershoots these expectations, we could see further downward pressure on the USD.
In the UK
Another element that is adding to the improved sentiment about global markets is recent polls that indicate Boris Johnson's Conservative party is still on track to gain a slim majority government. With the election six days away, the prospect of a Conservative win has boosted the value of the Great British pound, making it one of the best performing G10 currencies overnight.
Should the Conservative party gain a majority government, Johnson has reiterated his pledge to deliver a budget and 'Get Brexit done!' by January 31. Further to this, he is confident in his abilities to secure a trade deal with the European Union by December 31 2020. Long story short, we are looking down the barrel of another year-long saga of trade negotiations. Ho Ho No, thanks.
In New Zealand:
The Kiwi dollar is benefitting from the improved global sentiment, as well as the Reserve Bank of New Zealand's decision to lift capital requirements.
Wait, what are capital requirements? Essentially a banks capital is its ability to withstand losses without becoming insolvent. Banks becoming insolvent is really, really bad for the economy. National regulators, like the RBNZ, therefore specifying a minimum amount of capital that banks must hold. Some of the capital held is, of course, currency which in NZ's instance would be the NZD.
The RBNZ's new requirements weren't as strict as expected, going from 10.5% to 18% for big banks and 16% for smaller banks. Banks have seven years instead of the expected five to implement these new capital requirements that will come into effect on July 1 2020.
Not only does the extra two years than expected reduce some of the pressure on banks, but it also increases the demand for the NZD as banks sell off other currencies in exchange for Kiwi cash to make up their capital. At this stage, it looks like over 20billion NZD is needed.
This is a simplified explanation, but it is enough to show that the new capital requirements are good news for the NZD and Kiwi travellers.
In other news…
This week the Organisation of the Petroleum Exporting Countries (OPEC) met with their allies and agreed to cut oil output to prevent an oversupply and support oil prices. Existing supply will be cut by 1.2million barrels of oil per day (is anyone else overwhelmed by this many barrels??), and will stay in effect until the end of March 2020.
At the moment, markets are unsure of how these cuts will be distributed as the deal is still yet to be ratified. How these cuts are distributed amongst different countries, including Australia and New Zealand, could have an impact on the foreign exchange market.
All things considered, it's worth keeping an eye on the news if you are planning on purchasing foreign currency for your festive getaway. A global or domestic event could have an impact on the amount of cash you'll be taking in your trusty travel wallet.
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