The Australian Dollar (AUD) has remained fairly resilient over the week holding above the weekly open of 0.7520. Receiving a bounce late Wednesday during US session back to 0.7600 after RBA governor Lowe’s speech earlier suggested that the central bank would focus on rising Chinese debt levels and the effect this could have on the Australian Economy. The assistant governor Bullock is to speak later in the week in Amsterdam but until then markets will be hanging off every word spoken in regards to Trump and North Korea issues for guidance to further direction.
Wednesdays Trade Balance figures printed higher than expected at 263M with an expected surplus of 200M. These figures were considerably better than the April figures which were -86k. April exports of NZD 5.05B come in higher than the estimated 4.85B. Fruit exports were among the best resulting in a rise of 51% to 615M, led by a rise in quantity of 61% in kiwifruit. Markets will be led by risk sentiment towards the end of the week, with prospects of the kiwi trading lower against its peers if a risk averse sentiment continues.
FOMC Federal Reserve meeting minutes were released on Thursday morning NZ time highlighting inflation would continue to rise above 2% and that a “systematic” approach would be needed. Earlier there was debate over whether the Fed would hike rates a fourth time in 2018 but recently the chances have decreased to only 3 with a probability of about 40% of a fourth. Markets have already priced in a 95% chance of a hike in the June FOMC meeting followed by another hike in September. US Demands that North Korea hand in all their nuclear weapons have eased with Secretary Mike Pompeo saying instead they would like credible steps towards meeting this goal. South Korean President Moon Jae- in spoke with US President Trump about their concerns for the summit taking place, as both now have concerns a meeting may not take place. These concerns rocked the FX markets with risk taking a hammering as equities and the US Dollar traded sharply lower.
The British Pound (GBP) has slid lower over the week, travelling lower across the board. Against the US Dollar (USD) it has drifted to 1.3290. Investors have flocked to the safety of the greenback, inflation numbers were printed worse than expected coming in at 0.4% versus 0.5% estimated. Earlier in the week the Pound rose after Bank of England governor Carney said interest rates would rise at a gradual rate as the slowdown in the first quarter of 2018 was only temporary. Gertjan Vlieghe later said interest rates should rise around 0.25% – 0.50% every year until 2021. CPI published at 2.4% for April down from the 2.5% seen in April putting a damper on a possible increase in the cash rate in August which has gone from over 60% chance to under 50% and weighed on the Pound (GBP) through most sessions as markets were already well offered based on aversion to risk with the US, North Korea issues continuing.
The EURO (EUR) continues to remain on the ropes on the back on disappointing Services and Manufacturing May PMI. French PMI disappointed with 54.3 based on expectations of 57.1 and German PMI published at 56.8 with 57.9 expected. Also weighing on the pair were concerns from President Mattarella regarding the “fit” of the coalition cabinet. Turkey central bank raised rates 300 points to 16.5% Wednesday with current elevated levels of inflation continuing to pose problems. The Lira tanked over 5% but has recovered somewhat to retrace back over 2%. The ECB monetary policy minutes meeting revealed that policy makers were confident that the inflation would return to the 2% target in the medium term with the asset purchase program to finish at the end of this year. It would remain at 30B EURO per month until the end of September or possibly further if necessary.
The Japanese Yen (JPY) has weakened off based on risk aversion in the markets, renewed concerns have surfaced straining the relationship of China and North Korea. The Japanese Yen made the most of the situation plunging to 109.50 after starting the week around 111.00 against the greenback. Further adding to the JPY strength is the narrowing of the spread between the US 10 year at 2.97%. The ongoing dispute between US and China has heightened over the last few days. Massive support lies at 108.60 with thin air down to 107.50. Core yearly CPI is published Friday and should publish around 0.6% growth expectations.
Geopolitical risks from Turkey to North Korea and Italy to China have dampened investor moods over the week with equities, commodities and US treasury yields trading lower. The colossus that is the US Dollar has found support along with Crude Oil. The Canadian Dollar remains a heavily purchased currency but has slid in value against the US Dollar. Crude Oil still sits above 71.00 and has spurred on the CAD over a week of volatility and very little local Canadian news and data. Next week we have the Bank of Canada (BoC) Cash rate announcement on the calendar which is expected to remain unchanged at 1.25%