The Kiwi dollar has been one of the strongest performing currencies worldwide this week, as the RBNZ decided to keep rates on hold for the time being. The NZD popped on the news, continuing its recent positive run against the USD, GBP, EUR, JPY, SGD and CAD. This is good news for Kiwi travellers heading to the US and Europe especially, you’ll find you’ll be able to treat yourselves to a few extra hotdogs and croissants this week!
At the moment, 1 NZD will buy you:
The Reserve Bank decided to keep interest rates on hold this week at 1.50% leaving the door wide open for the cash rate to be reduced further in the short term though. In their decision, the RBNZ stated that “the weaker global economy is affecting New Zealand through a range of trade, financial, and confidence channels” and noted “"more support from monetary policy was likely to be necessary" in the coming months.
This is about as blunt as a message from the RBNZ gets folks, they may not have cut rates this month, but the question is when, not if rates will be cut again this year. The RBNZ used the same blunt style of language in their March decision which was followed by a cut in May.
It appears the market has priced in a rate cut in August, so all eyes will be on the release of domestic economic figures up until that point as well as the outcome of the US/China negotiations at the G20 summit this weekend.
For now the NZD is rejoicing, but it could be short lived if international pressures fail to subside any time soon.
With the race still going to decide who will replace Conservative Party leader and Prime Minister, Theresa May, there is no solution to the Brexit conundrum in sight. There was a sight glimmer of what can only be described as positivity as Boris Johnson showed us his gambling side by giving a no-deal Brexit solution a million to one chance under his watch. Johnson said ‘common sense’ will prevail when a new Brexit Bill is debated in Parliament, but if he’s hoping common sense will be enough to get it through, a million to one chance starts looking juicy.
As expected, the only movements for the GBP against major currencies have been sideways and downwards. The GBP performed weakly against the AUD and NZD, went sideways against the USD and took a couple of backward steps against the Euro. Until Brexit is sorted once and for all (and not a no-deal solution) there isn’t much positivity on the horizon for the GBP, with the only positive being the Bank of England’s decision to leave interest rates on hold.
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President Trump was seemingly trying to aggravate as many people as possible this week as he took aim at The Federal Reserve for failing to drop interest rates, EU regulators for suing US tech firms, Vietnam for being an “abuser” by allowing Chinese goods to evade US tariffs, China for being eager to finalise a trade deal because their economy ‘going down the tubes’, Japan due to an ‘unequal’ military alliance and to top it all off, India for using Trump’s favourite weapon of trade destruction against him, tariffs. Phew, did we get everyone?
President Trump also made clear this week that he was prepared to slap China with additional tariffs if negotiations between the countries failed at the G20 summit this weekend. Trump said that while China is “eager for an agreement” now, a deal was already “90 percent” done before talks collapsed back in May. Trump said the US would insist that the same provisions that were previously agreed to, including intellectual property legislation and measures to open the Chinese market to foreign companies are included in the new agreement.
According to the Wall Street Journal, Beijing has some conditions of their own for the US, including:
“Tell him he’s dreaming” is a quote that came to mind when I first read them, but hey, we live in crazy times so who knows.
There are incentives for both the United States and China to get negotiations sorted and trade back on track. The United States economy is starting to feel the pinch with the Federal Reserve citing uncertainty surrounding trade policies as a key reason it may cut interest rates. Stock markets have soared and sunk with president’s tariff tweets on China, Mexico and now India. The tariffs have also stunted the Chinese economy, consumer confidence is down, and growth in industrial production has slowed to a snail’s pace.
In a boost for Trump’s tariffs, US GDP came in as expected at a healthy 3.1%, with exports rising by 5.4% and imports dropping 1.9%. Further data showed that consumer spending remains in the doldrums at 0.9%, and while more people may be buying American, they are buying less on the whole.
If the Federal Reserve do what many economic pundits are expecting and drop interest rates in July, expect the USD to perform a little softer compared to the NZD in the short term despite the RBNZ showing a predisposition for cutting rates again in the near future. Stay tuned.
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