NZ to seek an exemption to the Steel tariffs. The EU’s top trade officials say they have no clarity on President Trump’s plans on trade tariffs, as his decision to slam hefty tariffs on steel and aluminum builds pressure. Trump posted on twitter- “The European Union, wonderful countries who treat the US very badly on trade, are complaining about tariffs on Steel and Aluminum”, If they drop their horrific barriers and tariffs on US products going in, we will likewise drop ours”. Playground behaviour one would think?!. The President is set to meet Korean dictator Kim Jong Un with many US national security experts suggesting this could end up being a big mistake given the two personalities. In other US led news the Florida Governor has signed off on new gun laws including raising the minimum age to purchase a gun to 21 and extending the waiting period to 3 days. This is the boldest laws made in the state in decades and comes just 3 weeks after the Parklands school shootings. We await other states to follow suite with Illinois and Vermont thinking about with the NRA in damage control filing a lawsuit immediately after the Governor’s announcement. The US Dollar is up slightly over the week with the index breaking back above 90.00. This week will be hard to read as a “risk on” or “risk off” market so direction will be tough accordingly. If equities continue north this could be a sure bet high yielding risk currencies such as the Australian Dollar (AUD), New Zealand Dollar (NZD) and the Canadian Dollar could trade well this week. There are continued calls for a second Brexit ballot. Brexit polls are still close with “remain” still slightly ahead by 51% to 49%, the problem is as things draw closer to the actual date those that have not chosen to vote or the undecided bunch would now more than likely vote to stay/remain than leave, this suggests that any second ballot outcome would depend largely on who actually votes. NZ quarterly GDP prints Thursday.
The Australian Dollar (AUD) finished the week well pushing back to 0.7850 with offshore news dominating movement. US Non-Farm Payroll boosted risk currencies on better than expected figures while the US Unemployment figure remained at 4.1% This week is a quiet week for the Australian Dollar with limited data – RBA Assistant Governor Kent and Debelle speak Wednesday and Friday. Last week the RBA left the cash rate unchanged at a record 1.5% and they are not in any hurry to raise the rates before they are ready- this could put added pressure on the AUD over the year as the US hike their cash rates as predicted. The Aussie Dollar sits higher on the Monday open eager to continue north against the US Dollar this week, the prior high of 0.7970 could enter play if risk appetite continues as buyers continue to buy up AUD.
The New Zealand Dollar (NZD) made ground over the later part of the week against its main rivals, risk appetite being the key as Non-Farm Payroll prints better than expected. US President Trump has reportedly accepted to meet with North Korea’s Kim Jong-Un Thursday taking the Trump administration by surprise by seemingly accepting without taking into consideration the risks involved. All attempts since 2003 to negotiate for disarmament have been unsuccessful when North Korea pulled the pin on the Nuclear Non-Proliferation Treaty (NPT)- the Word will certainly be watching when the summit takes place. Chris Liddell is picked to take over as Director of National Economic Council after Gary Cohn’s resignation last week, he comes to the roll after being highly regarded at Microsoft as CFO. This week NZ has Current Account, quarterly GDP and the Business Manufacturing Index. If things continue well for the NZD this week it may make a push for earlier year highs pf 0.7430 against the US Dollar and 0.9400 against the Australian Dollar (AUD)
US Non-farm payroll released late last week showing wage growth with 313,000 people added to the workforce while wages slowed to 2.6%. The official unemployment rate is now 4.1% from 4.0%, the releases temporarily strengthened the greenback slightly against the major currencies but it quickly sagged into the weekly close. President Trump’s Tariffs were made official Thursday by the White House and has angered international markets, the European Union feeling the added pressure with allies wondering where they stand, even harbouring threats from his own party members to stop the tariffs through legislation. Trump decision to exempt Mexico and Canada are only if they can strike a deal with the US with NAFTA. Every other country will be required to negotiate a separate deal with the US which will take effect in two weeks. Chris Liddell the ex- kiwi businessman is tipped to be Trump’s new ‘Director of the National Economic Council” following Gary Cohn resignation last week based on Trump’s announcement of Tariffs which he strongly disagreed with. This week sees a busy week for the US with monthly CPI, Retail Sales and Building Permits. The US Dollar (USD) index currently sits just above the 90.00 mark up from last weeks close, we should continue to see further volatility.
The EURO (EUR) finished the week fairly uneventfully after earlier recouping small loses trading back to its weekly open of 1.2330 versus the US Dollar (USD) in risk on markets. Mario Draghi the European Central Bank president reiterated on Friday the need for accommodative monetary policy going forward and that the eurozone was moving into hawkish territory with quantitative easing while casually mentioning the need to resolve current trade tensions built up recently by President Trump. He has left the benchmark cash rate at 0.0% and confirmed he would continue to buy EUR 30B until the end of September or later if the need became apparent as a sustained inflation adjustment tactic. The Euro (EUR) has opened strong Monday and looks to push back to early march levels around 1.2450. Draghi speaks again on Wednesday the only significant item on the calendar this week.
The British Pound (GBP) extended gains last week over its closest rivals. Manufacturing Production figures Friday printing worse than expected at 0.1% after 0.2% was expected but it never made a dent. The GBP has started the week on a good footing as reports surface that the UK and EU were closer to reaching a Brexit deal. The Pound (GBP) against the US Dollar (USD) trades around the 1.3900 area and looks for a break higher back to February’s high of 1.4140. Public opinion suggests holding a second referendum is the way to go but this wouldn’t matter as Theresa May had a majority in the house of commons and a party that was united in support of Brexit. The government budget is released this Wednesday.
The Japanese Yen suffered losses last week falling to USD Dollar (USD) strength throughout the week in volatile trading. Wednesday saw USD slide back to the weekly open of 105.45 before the US Dollar kicked back retracing its earlier gains taking the pair back to just shy of 107.00 at the weekly close. Bank of Japan’s (BoJ’s) governor Kuroda said Friday it won’t scale back its aggressive monetary policy program before inflation reaches its target of 2% in an attempt to soften the expectations of earlier rate increases. The BoJ would more than likely push the projections for rate increases back to late 2019. The long-term low of 105.25 could be safe this week as the US Dollar (USD) eyes 108.00
The greenback (USD) continues to post new highs against the Canadian Dollar (CAD) trading through the 2nd of February high at 1.2800 late last week before easing lower. With Non- Farm Payroll printing much better than the predicted figures Canadian Unemployment was largely ignored coming in lower at 5.8% as opposed to 5.9%. President Trump continues to wear down his rivals saying recently that separate talks with Canada and Mexico would resume, the problem with this is that it has not really gained any traction, so he has threatened to ditch NAFTA, which won’t happen. The Canadian governor Stephen Poloz is due to make a speech Tuesday night of which will be closely analysed for further clues as to monetary policy. The market isn’t pricing in a rate increase until July as the RBC expects to raise a further 2 times before year end. Markets have not yet priced in such events for the Canadian dollar- watch for a CAD revival short to medium term especially if Oil continues to go higher.
Major Announcements last week:
• US ISM Non-Manufacturing PMI prints 59.5, 58.9 expected
• AUD Current Account -14B against -12.3B expected
• RBA retain Cash rate at 1.50%
• US NOn-Farm Payroll prints 235k over 199k expectation
• US Unemployment rate higher to 5.8% on 5.9% expectation
• Canada keeps Cash rate at 1.25%
• European Central Bank keeps rates on hold at record low.
• US trade talks continue to dominate market news..