Collinson FX: Sept 21, 2018 -NZD lifts on GDP rise
by Collinson FX 24 Sep 2018 01:10 NZST
24 September 2018
Victoire - Hamilton Island Race Week - Day 5 © Richard Gladwell
Collinson FX: Sept 21, 2018 - NZD lifts on GDP rise
Markets are risk-on, with positive sentiment flowing through global markets, as US equities hit record highs. The China/US trade sanctions were lighter than expected and the Chinese look to be boxed in. They are fast running out of US products to tax, so the options are restricted to raising existing taxes, or settle. The trade war is having vastly different consequences for the participants involved, as the US economy booms, while the Chinese are suffering. The relief rally spread to trade exposed countries, with the AUD pushing up near 0.7300, while the NZD surges towards 0.6700.
NZ GDP beat expectations, rising to 1% for the June Quarter, adding further impetus to the rising currency. The growth number was unexpected, save for a slip by the PM, but was broad based growth except for a collapse in the mining sector. The Dollar rode the risk-on sentiment lower, with the EUR trading 1.1770, while the GBP jumped to 1.3270. The Salzburg Summit, between the EU and the UK to finalise Brexit negotiations, failed with the rejection of UK PM’s proposal. The heat is on, as nothing has been agreed to, with Britain scheduled to leave by March 2019. Something must give and it may be May?
Collinson FX: Sept 20, 2018 - US/China Trade War not dire as expected
China/US Trade developments were not as dire as expected, with China levying only a 10% tariff on $60 Billion of US exports, instead of a threatened 20%. The US imposed 10% tariff on $200 Billion of Chinese exports, increasing to 25% by years end, thus calming markets. Equities rallied, as did US interest rates, as confidence returns. The Chinese will concede, no matter how smart they are, because the numbers do not add up. Chinese export over $500 Billion p.a. to the US, while the US export only $130 Billion to China, so the game can only have one winner. The Chinese have levied tariffs on nearly all US Imports, while the US can impose tariffs on over $500 Billion. Who has the leverage?
The Dollar drifted despite interest rates rising, with the 10 year bond rising to 3.09%, risk-on! The EUR held 1.1675, while the GBP traded 1.3140, with CPI data rising to 2.7% p.a.. The heat is going out of the US/China trade war which allowed the trade exposed currencies to benefit, as the AUD jumped to 0.7250, while the NZD broke above 0.6600. NZ Current Account Data deteriorated, yesterday and today’s GDP number is expected to be soft. Any surprises to the downside could interrupt the currency recovery.
Collinson FX: Sept 19, 2018 - US/China Trade War impacts NZD
US equity markets surged, despite the US/China trade developments, as the tariffs levied were lighter than expected. The US imposed 10% tariffs on $200 Billion on Chinese goods, rising to 25% by years end, while the Chinese response was minimal. The Chinese imposed a 10% tariff on 5,000 US goods in retaliation. Trump tweeted the Chinese plans to politically target Trump supporters with their tariffs (farmers etc) would fail, but reveals the extent of Chinese targeting rand the depth of planning in this trade dispute. The balance of trade means there can be only one winner and this is a battle over timing and dividend.
The Dollar remains soft, with the EUR progressing to 1.1670, while the GBP trades 1.3150. Australian House prices continue to contract, as discussed by the RBA in their last statement, with high debt levels and rising interest rates taking their toll. This remains a substantial threat to the Australian economy, but the easing reserve allowed the AUD to regain 0.7200, while the NZD pushed up to 0.6580. The US/China trade war directly impacts these trade exposed currencies, while NZ Consumer Confidence and Current Account data may impact the currency at the margins, today.
Collinson FX: Sept 18, 2018 - Trade war rhetoric rises
The US/China trade war continued with rhetoric rising. Key Trump financial adviser, Larry Kudlow, reiterated Trump’s dissatisfaction at the progress made, to date. Trump twittered that that the US was in a strong bargaining position, on trade, and failure to deal would result in the counterparty to be ‘Tariffed!’
Equity markets were soft, while the Dollar retreated, as EU CPI was steady around 2% p.a.. The Dollar retreated, with the EUR charging to 1.1680, while the Yen hit 112.00. Commodity currencies reacted to the flagging reserve, with the AUD pushing up to 0.7180, while the NZD traded 0.6580. These trade exposed currencies remain hostage to the China/US trade negotiations, driving uncertainty and vulnerability, awaiting an outcome. A resolution may see a substantial rebound, although continued disagreement undermines their positions, adding to recent susceptibility.
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