The Kiwi Dollar has had another relatively stable week as a lack of major price drivers have popped up recently. The NZD did receive a bit of a boost against the USD yesterday on the back of increasingly likely looking Federal Reserve rate cuts which sent the USD down a touch. The NZD also performed well against the JPY and moved positively against the AUD as well.
The NZD has shown a number of positive signs lately, gaining ground recently on the USD, GBP and AUD but has been held back each time by softer than ideal domestic data. If the NZD can find some support around these levels, put out some positive inflation data next week and hold firm in the face of US rate cuts, another rally might be on the cards in the short term.
The New Zealand Dollar hasn’t exactly been the picture of stability recently, being highly volatile and fluctuating quite widely on the back of US/China trade developments, an ongoing Brexit, Chinese economic data and domestic economic conditions. None of which appear to be disappearing in the near future.
The New Zealand Dollar is a currency that historically is quite popular when Central Banks around the world are dropping interest rates with the NZD offering strong yields for investor returns. With the Federal Reserve getting closer to dropping rates, the European Central Bank doing the same and the RBA in Australia tipped to drop rates once more this year, the NZD is shaping as a possible popular buy if the RBNZ take a one and done approach to their rate drops and hold off on another for a while.
Making things more complicated for the RBNZ are the mixed economic datasets coming out recently that paint an uncertain picture of the New Zealand economy at the moment.
The Bank of New Zealand-Business NZ performance of manufacturing index released this morning showed a 0.9 point increase from May to post a total score of 51.3, below market expectations of 53.0. While a score over 50 is considered growth, the index is still sitting below the survey's long-term average of 53.4.
These figures came after a report showing that NZ retail spending was also weaker than expected in June, pointing to a loss of momentum in key spending areas.
The RBNZ will be watching these developments closely and any further slide could result in another rate cut in August, while a turnaround could give the NZD another kick to the upside. Make sure you stay tuned for all the latest developments.
Brexit remains the key issue in the UK at the moment but it’s had to remain in the back seat for another week with the leadership battle for the Conservative Party staying front and centre. Bloomberg has released a survey of UK conservative party members showing that 72% back Boris Johnson to be the next leader of the party and PM.
Both Johnson and his adversary, Jeremy Hunt have said a no-deal Brexit would not be shied away from, despite almost total consensus that it would be a calamity for the UK’s economy. Staunch opponent of a no-deal solution and Pensions Secretary hopeful, Amber Rudd said today that “both candidates have said that no deal is part of the armoury going forward, and I have accepted that”.
There is also some critical economic data due to be released in the UK shortly. The combination of employment, inflation and retail sales data over the next week will be critical for shaping consumer and market confidence in the short term.
Economists are expecting employment to remain steady, but are less hopeful on retail figures, lamenting that further drops in sales will negatively affect the GBP leading up to the election of the next PM on either the 22nd or 23rd of July.
This is likely to keep the AUD and NZD performing at least neutrally despite domestic pressures and any move from the Bank of England to lower rates or move to a more pessimistic policy stance could see both currencies make some modest gains.
The Trade War with China is still simmering front and centre, but could the US be willing to embark on a new trade war with its oldest ally, France? President Trump has lashed out recently at new French laws designed to increase taxes on primarily digital companies who look to reduce their overall profit by using low tax havens. The increased levy would hit about 30 companies, including Google, Apple, Facebook and Amazon. Finance Minister Bruno Le Maire defended the move saying, “we are merely re-establishing fiscal justice. We want to create taxation for the 21st century that is fair and efficient”
The Irish Finance Minister, Paschal Donohoe also weighed in on the matter, arguing the taxes were "highly likely to exacerbate global trade tensions and damage cross-border trade and investment". France and the USA have history in the trade tension department with Trump already imposing new tariffs on imports of EU steel and aluminium and threatening tariffs on cars and auto parts in their trans-Atlantic trade negotiations.
All this uncertainty is keeping pressure on the USD and helping the AUD and NZD hold onto some ground in the face of mixed data domestically. For the short-term, USD performance hangs on the Federal Reserve and their rates decision, trade negotiations with China, domestic employment data and any new trade wars that might break out. Stay tuned to find out where the next one could be!
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