It’s been just over two weeks now since the RBNZ dropped interest rates and it’s been a mixed bag for the NZD since then. Anticipation heading into the release of the latest New Zealand trade data and all-important budget has held back the NZD along with increasing uncertainty in the US/China Trade War. The news is slightly better on the NZD/GBP front though, with Brexit’s shadow pushing the NZD slightly higher in the face of recent lows. That being said, today 1 NZD will buy you:
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Weak domestic retail and services growth creating uncertainty
If the NZD was hoping the release of the first-quarter retail sales report and sales services data would result in a reversal of recent losses, it was mildly disappointed this week. During the first quarter of 2019 retail sales rose 0.7%, down from a 1.7% rise in the final quarter of 2018 while the BNZ-Business NZ performance of services index fell 0.5 of a point to hit its lowest level in more than six years. Services account for around two-thirds of the NZ economy, and unless May data shows a rather sharp turnaround, New Zealand's GDP growth targets may need to be revised.
The weaker than expected domestic data also places the microscope directly over the RBNZ as they decide whether or not to cut rates for a second time. Despite these domestic uncertainties, the NZD has done well to hold ground against the GBP and USD, but only primarily due to them facing their own issues.
Time running out for UK PM Theresa May
As frustrated British citizens went to the polls to vote in elections for the European Parliament many of them don’t want anything to do with, Theresa May lost her 31st senior minister to resignation. Commons Leader, Andrea Leadsom quit cabinet saying she no longer believes the government's approach will be able to deliver Brexit effectively. Already under increasing pressure to resign, Theresa May’s fourth iteration of the Brexit Bill, the legislation required to bring her agreement into UK law, was knocked back overwhelmingly by her own Conservative party. Speculation is now rife that May could announce her resignation as early as this weekend, setting the stage for a complex and unwanted sideshow to choose a new Prime Minister to take Brexit to its conclusion.
Due to the growing uncertainty around May’s position and the possibility firming once again of a no-deal Brexit, the NZD had slight gains against the GBP over the last week. Even though it appears global traders have already priced in the possibility of May’s resignation into the value of the Pound, it remains to be seen what effect a protracted leadership battle or imminent possibility of a no-deal Brexit will have on the GBP moving forward.
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US/China Trade War drives market losses and lowers USD
Before the latest round of economic tariffs imposed by the US and China in tit-for-tat moves, US Government rhetoric and share markets had been rather bullish on putting the Trade War in the rearview mirror. However, since the imposition of trade tariffs and restrictions on Chinese technological companies, the Trade War has only intensified, with its effects felt even further.
Despite President Trump announcing he would be meeting Chinese President Xi at the Osaka G10 summit next month with a good possibility of a trade deal, the USD and US stock markets have not reacted with positivity. Overnight, the Dow Jones, Nasdaq and S&P all lost over 1% of their total value, with technology companies being hit the hardest once again. The technology sector is the darling of the US stock market, and commentary from the Chinese side claiming the US Administration is embarking on a “technology cold war” has put a dent in the market’s confidence.
In a further sign that the US doesn’t expect an end to the Trade War any time soon, President Trump today announced a $16 Billion package to help farmers caught in the crossfire. In the US rates market, all Treasury yields between 3 months and 10 finished lower in a sign that the Federal Reserve could be gearing up to cut interest rates this year.
The good news for NZD/USD markets in the short term at least, is that this uncertainty is likely to place upwards pressure on the NZD, possibly protecting it from losses due to broader global uncertainty. This is supported by the fact that the NZD/USD stayed stable overnight despite the Trade War intensification and a large drop in crude oil prices which would typically strengthen the USD and lower the NZD/USD market.
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