The NZD lost ground slightly against the USD this week and struggled to hang onto recent gains against the GBP as investors take a wait and see approach on domestic data and Chinese economic conditions. Both the US and China are flashing mixed signals in their continuing Trade War and economic performances, with investors shying away from riskier currencies like the NZD and AUD until the picture becomes a little clearer in coming weeks. At the moment, 1 NZD will buy you:
The NZD has had a mixed week against the major currencies, with a host of international pressures and a lack of domestic data making it difficult for the Kiwi dollar to make much of a positive move. In one positive for the NZD, mixed jobs data across the ditch gave the Kiwi dollar a boost against the AUD as speculation grows the Australian RBA will lower rates sooner rather than later.
With no major domestic data being released so far this week, Kiwi traders have been focusing on developments in the US/China Trade War and Chinese economic data to gauge the strength of the NZD relative to its counterparts.
China is New Zealand’s largest trading partner, and there have been further signs recently that the Chinese economy is feeling the effects of the trade war with the US. All eyes are on the upcoming release of China’s industrial production and retail sales data which will provide more insight into the impact of the Trade War on Chinese businesses. Expect any further slowdown in the Chinese economy to hurt the export-reliant New Zealand economy and keep the NZD flat.
Domestically, data is due to be released today on house sales from the Real Estate Institute of New Zealand, followed by manufacturing data and food prices. While these figures will be important for gauging the short-term performance of the NZD, next week's gross domestic product data will be the key to long term stability. If growth is weaker than expected it will add pressure to the New Zealand central bank to cut rates again, weakening the NZD against major currencies.
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The recent positive NZD/GBP performance has been continued by further instability in the UK surrounding Brexit and exactly how it is going to be managed over the coming months. Now that Theresa May has officially stepped down as the Conservative Party leader, the race to replace her is really starting to kick into gear, with a secret ballot taking place overnight in the first round of party voting.
Unfortunately for the GBP, hardline Brexiteer and ardent No-Deal supporter, Boris Johnson soared above other leadership contenders in the ballot, receiving 114 votes out of a possible 300, nearly triple the votes of the nearest MP, Jeremy Hunt. Three MPs failed to meet the threshold of 17 votes needed to stay in the leadership race and were eliminated, leaving seven contenders to fight it out for the opportunity to succeed Theresa May as party leader and prime minister.
In another blow for the GBP, but on a positive note for NZD performance, the UK Labour Party’s dramatic attempt to block the possibility of a no-deal Brexit was defeated by a slim majority of 309 votes to 298. The failure of the Labour-led motion to remove the spectre of a no-deal Brexit weakened the Pound as MPs on both sides of politics warned a no-deal strategy would be catastrophic for the UK.
Labour leader Jeremy Corbyn said Labour would “never accept no-deal”, while former Conservative MP Nick Boles, who flew back to the UK to vote with Labour lamented that a “No-deal Brexit on 31 October is back to being a racing certainty.” It means that the UK is no closer to coming to a viable solution and the markets have responded with investors avoiding the GBP in early morning trade.
If the UK leaves Europe without an agreement in October, there will be no transition period, with the European Commission warning on Wednesday that Britain would be obligated to pay its outstanding share of the existing EU budget. Under Theresa May’s previously negotiated Brexit withdrawal agreement with EU leaders, the UK would owe the EU approximately $70 billion. Talk about bill shock!
With a lack of upcoming economic data in the United Kingdom, all eyes are on the political movements and power plays, further weakening the performance of the GBP.
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Across the Atlantic, the USD rose slightly overnight against major currencies despite lower than expected inflation data as the market seemed to regain some optimism that the Trump Administration will come to arrangements with its trading partners. With all eyes focussed on consumer inflation indicators, data showed that the CPI slowed to 0.1%, down from 0.3% in the previous release, but not too far off market estimates. With May inflation numbers staying low, pressure is growing on the US Federal Reserve to lower interest rates in order to boost economic activity and inflation, putting a bit of pressure on USD short-term performance.
Up until this week, there were fears that the Trump Administration would slap Mexico with trade tariffs, opening up another trade war front, with the tariffs due to take effect on Monday. High level talks and some positive Tweeting by Donald Trump helped defuse the latest crisis, strengthening the USD slightly against the NZD and GBP. In further positive news for the USD, G20 finance ministers agreed on a joint communiqué to reduce trade tensions in an effort to restore some stability to global trade. President Trump and President Xi of China will be meeting at the G20 summit in Japan later this month and there is a belief that we could see progress in the ongoing trade dispute between the world’s two largest economies.
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