It's Friday the 13th, and I am happy to report that there is nothing *spooky* happening in markets. If anything, markets have been relatively dull. We're not one to complain though, because this has kept the NZD pretty steady throughout the week. As we go into the weekend, one Kiwi dollar will buy you:
What's what in foreign exchange markets this week
Glimmers of hope for the US-China trade war
While there is still no clear outcome for the ongoing trade war between China and the US, first signs of progress are coming to light with both sides delaying immediate tariff hikes.
China has announced a short-list of products that they will temporarily exempt from upcoming tariffs and Trump has delayed the next increase on tariffs for Chinese exports by two weeks. Sure, we would prefer an end to this whole thing altogether, but Rome wasn't built in a day. We will settle for baby steps, especially if it means we are closer to ending this beast of a trade war.
It isn't just foreign exchange markets that are waiting with bated breath for a resolution to the trade war. Plenty of companies across the world are feeling an impact on trade and profits as a result of the tensions.
Any improvement in the trade war is generally pretty good for the Kiwi Dollar. Our close trade ties with China mean our economies are intrinsically linked. Therefore, a positive for them is positive for New Zealand and the NZD. Not to mention the trade war is weighing in on global market sentiment and fears of a recession.
All we can do is sit tight and try not to emotionally eat if things go south with the trade talks again.
Another extension on the Brexit horizon
New information has been leaked that suggests the European Parliament is set to grant the UK with yet ANOTHER extension for Brexit. Let's remember that Brexit was meant to take place on March 29 and the UK has since been given several extensions, with the current deadline being October 31.
In line with Halloween, an extension will continue the nightmarish mess that is Brexit. At this point I'm not sure what is scarier - the UK leaving the EU with a no-deal on October 31 and potentially crippling their economy, or the prospect of being stuck in an infinite cycle where Brexit is extended until the end of time. Both seem equally possible at this point.
To add further fuel to the fire, British PM Boris Johnson has said he would "rather be dead in a ditch" then ask the EU for another Brexit delay. With the postponement seeming more and more likely, Johnson either needs to start excavating a comfortable ditch, plan his resignation speech or completely flip in his opinion to support an extension.
European Central Bank cut interest rates to record lows
This week the ECB announced cuts to interest rates as well as an economic stimulus package in response to growing concern over the global economy.
Interest rates were cut ten basis points to -0.5% in line with market consensus. They also revived a 2.6 trillion euro program to buy bonds for an unlimited period. This tactic is called quantitative easing and essentially means the ECB will buy around 20 billion euros worth of bonds every month, starting from November, until inflation becomes more in line with targets above 2%. Once inflation reaches this point, they can re-evaluate and potentially begin increasing interest rates.
Fingers crossed it works as expected because 2.6trillion euros is a lot of money that they could otherwise spend on prosecco, cured meats and croissants.
The Kiwi Dollar has experienced a bit of a mixed bag this week. The NZD underperformed slightly as a result of an increase in Chinese purchases of US agricultural exports. This could, in turn, result in less demand for Kiwi agrarian exports. Rather annoying really, China's over there having a massive trade war with the US and still chooses their agriculture over that of New Zealand. Definitely not choice, bro.
On the other hand, the NZD has seen upward pressure against some key currencies, including the USD, JPY, EUR and GBP. It's definitely nice to see the NZD back over the 0.50 threshold against the GBP after last week's gnarly low of 0.4994. All in all, a not too shabby week if you ask me, especially after what we have been through over the last few months.
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