CPI Data released on the softer side representing 0.4% growth down from the 0.5% expected by markets. This makes the total for 2018 of 2.1% while the year on year rate is still ticking along at 2.2%. Most of the growth has been in fuel price strength, electricity and tobacco with clothing footwear and furniture having been weak. The Australian Dollar dipped to 0.7350 against the greenback but has since recovered after risk sentiment improved. The Aussie has be swayed by global developments with President Trump meeting with EU’s Juncker to work out a long term trade deal. How things play out with the impact with US and its impact on China is something the Aussie will remain sensitive to. In recent days the Australian Dollar has worked itself higher from 2018 lows.
With a lack of onshore economic data to release this week in New Zealand, we have seen global news dominate kiwi movement. Trade Balance Wednesday disappointed coming in at -113M versus 200M expected but surprisingly had little effect on the NZD. President Trump’s tweets have been the highlight of the week as we said earlier with the New Zealand Dollar drivers coming in the form of big picture macro themes. Commodities and equity prices improved with risk sentiment and the kiwi pushed north. The only currencies to value higher this week is the CAD and the AUD. Markets will continue to monitor updates on the global trade front, but for now the kiwi as a risk favoured currency will continue to benefit on positive headlines.
Not much has been going on in the markets over the past few days as markets have been in a state of nervousness with a wait and see approach in play on the back of the latest US rhetoric concerning the ongoing trade fiasco. President Trump and EU’s Juncker met and discussed an agreement to reduce trade bureaucracy and zero tariffs. The current trade agreement in place between the US and EU is the largest trade agreement in the world worth a massive 1 Trillion Dollars. Trump tweeted: “Great meeting on Trade today with Junker-EU and representatives of the European Union. We have come to very strong understanding and all believers in no tariffs, no barriers and no subsidies. Work on documents has already started and the process is moving”. The US and EU will hold off on further tariffs while trade negotiations take place. The DOW and other equity based markets are all trading higher on the news with risk on the table we could see further declines in the greenback.
The British Pound has finally shrugged off a tough period of pain after a slew of weak economic data has weighed on the currency going back to mid April 2018. The fact that the Pound has been a stand out performer of late has been impressive after being so beaten down. Theresa May announced she would be taking control over Brexit negotiations relegating the Brexit department. Tony Blair has waded in on conversations regarding Brexit and thinks there will be a stalemate. He went on to say a second referendum on whether the UK should leave the EU is a possibility and is more likely now than it was several months ago. The Pound also benefited from worse than predicted US Data with Existing Home Sales publishing lower. Next week we have the (BoE) Bank of England official Cash Rate which is not expected to be hiked past the current 0.50%.
The Euro continues to be choppy this week, we have seen very little volatility with markets adopting a wait and see approach with further trade talk in place – this time with EU’s Juncker and US President Trump meeting to discuss how to proceed with their 1 Trillion trade agreement. Trump described the meeting a a “new phase” in their relationship with the two economies set to start heavy negotiations which will include zero tariffs and subsidies for non- industrial products. Economists agree that the biggest threat to the US would be tariffs on cars. The ECB announced their ECB Cash rate overnight leaving the rate at zero % with Dragi already confirming policy will remain in place until at least June 2019. Draghi’s opening comments were that the economy is proceeding along a solid broad based path of growth with the latest data showing stabalisation and in line with recent forecasts. French and German Manufacturing figures out were benign not offering much in the form of relief for the struggling Euro.
Price action has been light this week with a lack of meaningful economic data to shift markets significantly. After last week gains against the greenback the Japanese Yen has continued to add length on the US Dollar pushing as low as 110.80. With renewed downward pressure it’s clear President Trump has brought about broad based profit taking on USD long positions. While US equities and risk products remain bid we could see further selling of US Dollars especially if risk appetite deteriorates. Further movement over the rest of the week will be based on updates on the global trade scenarios more than likely through twitter. Tokyo Core yearly CPI just released today came in at 0.8% up on the 0.7% expected boosting the Yen.
The Canadian Dollar has put in a good performance this week recovering from and a bout of early weakness it has rallied to 1.3040 against the US Dollar, a six week high. As risk currencies gained popularity Wednesday the Canadian Dollar has out performed. Better crude oil prices and record high US Equities amid impressive Canadian data have buoyed the Loonie (CAD). With an absence of any real data over until the weekly close the focus will be on global trade, equities and risk products to determine direction. Optimism for a North American Free Trade Agreement (NAFTA) is still high with the Canadian Foreign minister and the Mexican Economy minister saying they are positive the 24 year NAFTA trade deal can be revamped.