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AUD has another look at US 80 cents. NZD back at 73 cents. US Dollar falls on fears of a government shutdown.

By Nick Parsons

The New Zealand Dollar was again very well bid on Thursday, vying for top spot with the British Pound. During the Asian morning, NZD/USD had fallen below USD0.7250 but from there it was a pretty much uninterrupted journey back on to a US 73 cents handle early in the European afternoon. It didn’t quite breach the 2018 high of USD0.7330 seen on Wednesday, but did get to within almost 10 pips of that peak.

According to the REINZ, median house prices across New Zealand rose by 5.8% in 2017 to $550,000; up from $520,000 in December 2016. Median prices for New Zealand excluding Auckland increased by 6.6% to $450,000 whilst Auckland’s median house price increased to $870,000 from $855,000 in December 2016. 13 out of 16 regions saw prices increase in December, with three of those regions experiencing record prices; Waikato, Bay of Plenty and Wellington. As REINZ also noted, “When looking at the Auckland picture, this is the first time that all seven districts have had a median price of in excess of $700,000 highlighting how expensive the city is becoming”.

Even more interesting, perhaps, is the Department of Internal Affairs data on baby names. Charlotte and Oliver have topped the list of New Zealand’s most popular baby names for 2017. Charlotte is up from second last year whilst 2017 is the fifth year in a row that Oliver tops the boys’ list. Taking a longer historical view, analysis by stuff.co.nz shows Michael is the most popular name of the past 60 years in New Zealand. More than 40,000 babies have been named Michael since 1954, after which comes David (36,792), James (27,224) and John (26,867). All the names in the Kiwi top 10 are male. The top-ranking girls' name is Sarah, at number 12, which has been given to 19,901 babies in the past 60 years, followed by Karen at number 22 (13,524) and Emma at number 23 (13,245). We might not be able to explain why the NZD is going up or down, but we know the names of those who it affects and what their house is worth!

The NZD opens in Asia this morning at USD0.7310 with AUD/NZD at 1.0930.

We said in our North American morning commentary that, “European traders seemed to like the employment report more than their Australian colleagues”. Indeed, by 2.15pm London time, the AUD was back on a US 80 cents big figure having been just below 0.7950 after the figures were released back home. It may be back at 80 cents, but that didn’t make it the best performer on the day; the AUD lost ground to the NZD, GBP and EUR to leave it very much middle of the global FX pack.

There were certainly plenty of positive headlines in the labour market report for the offshore market to digest. Employment rose by a seasonally adjusted 34,700, beating consensus expectations of a 15,000 increase. Employment has now increased in each of the past 15 months, which equals the longest consecutive streak on record. One more positive month in January would be the longest uninterrupted period of jobs growth since the survey began in 1978.

Full-time employment increased 15,100 to 8,518,900 in December and part-time employment increased 19,500 to 3,921,800. The ABS noted that, "Full-time employment has now increased by around 322,000 persons since December 2016, and makes up the majority of the 393,000 net increase in employment over the period," It was the fastest growth over a calendar year on record, and the second fastest over any 12-month period, only beaten by a 409,300 increase in August 2005.

Perhaps it was news that the unemployment rate however rose to 5.5% from 5.4% which had depressed the AUD in Sydney trading yesterday. This was due to much stronger labour-force participation which might indicate some further spare capacity in the labour market and therefore a lack of wage pressure. Unlike the United States or UK, Australia doesn’t publish earnings data at the same time as the jobs numbers so we’ll only have some patchy survey evidence and anecdotal evidence to go on.

There are no data locally this Friday and the AUD opens in Asia at USD0.7995 with AUD/NZD at 1.0940 and GBP/AUD1.7375.

The British Bitcoin Pound continues to trade in quite wide ranges against the USD though with a low around 1.3805 it didn’t quite repeat Wednesday’s feat of trading on three different big figures during the day. And, though it did get on to 1.39, it fell short of the previous day’s 2018 peak of 1.3930.

The only economic data released Thursday showed the UK housing market in stark contrast to that in either Australia or New Zealand. The Royal Institution of Chartered Surveyors monthly report on residential property market in December showed buyer interest edging lower whilst changes to purchase taxes for first time buyers are having little or no immediate effect.

After new buyer enquiries came close to stabilising in November, 15% more respondents noted a decline in demand (as opposed to an increase) in the month of December. Furthermore, when contributors were asked whether they have seen an increase in first time buyer enquiries following changes to Stamp Duty in the Autumn Budget, an overwhelming majority of 86% across the UK said they hadn’t.

Agreed transactions also fell at the national level with 13% more respondents reporting a decline in volumes over the month. Significantly, Scotland, Northern Ireland and the North East region were the only areas to suggest stronger transactions, whereas sales trends were either flat or negative across the rest of the UK. It could be a very long Winter for Estate Agents.

Today we’ll get the December retail sales figures. There has been a significant shift in buying habits as a result of Black Friday promotions a month before Christmas. Volumes ex-fuel rose +1.2% in November but are expected to show a -0.9% drop in December. The British Pound opens in Asia this morning at USD1.3895, AUD1.7375 and NZD1.9010.

In what is now becoming a familiar refrain, Thursday was another poor day for the US Dollar. With the EUR and GBP well bid, and the AUD and NZD back within touching distance of their 2018 highs, the Dollar’s index against a basket of major currencies fell from a high in Asia of 90.61 to a low in the New York afternoon of 90.05.

Equally as familiar as the dollar’s drop is that it came despite yet another good set of economic numbers. Last week, we saw higher core inflation and retail sales numbers. On Wednesday, industrial production surged +0.9% in December as unseasonably cold weather at the end of the month boosted demand for heating. Yesterday we learned that weekly jobless claims Jobless decreased by 41k to 220k); their lowest level since February 1973 and the biggest weekly biggest drop since April 2009. The figures suggest the unemployment rate of 4.1%, already the lowest since 2000, could be set to fall further. The latest week for claims includes the 12th of the month, which is the reference period for the Labour Department’s monthly employment surveys.

Rather than look at the incoming data, the USD is being spooked by headlines that US Senate majority leader Mitch McConnell is making contingency plans for the growing possibility of a government shutdown. Congress is facing a January 19 deadline (today) to pass a spending bill, which helps determine the government’s budget and discretionary spending for the fiscal year. Without it, the government will shut down. This would be truly surreal. It would be the first time ever that a party which controls the White House, Senate and House of Representatives has overseen a government shutdown.

During the last government shutdown in October 2013, 850,000 federal workers were furloughed, equal to nearly 40% of the government workforce. The shutdown lasted for 16 days, triggered by a disagreement over Obamacare. According to Standard & Poor’s, it cost the economy $24 billion.

The US Dollar index opens in Asia at 90.15 whilst US 10-year bonds are 3bp higher in yield at 2.61%.

The EUR rallied throughout the day on Thursday, rising from a low of 1.2165 early in the Sydney morning to 1.2260 in the European afternoon.

The highlight of the day was Bundesbank President Jens Weidmann and IMF Managing Director Christine Lagarde speaking at a joint conference in Frankfurt. The German central banker defended his country’s record budget and current account surpluses after criticism from the International Monetary Fund that they are hobbling growth in the euro zone and widening global economic imbalances. “Raising public spending in order to reduce Germany’s current account surplus would likely be a futile undertaking”, he said.

To give an idea of the scale of the numbers, Germany’s current-account surplus over the 12 months through November totalled 262 billion euros ($320 billion). The budget surplus was 1.2% of gross domestic product last year, the biggest since reunification in 1990 and the fourth in row. German manufacturers and exporters are loving the level of the euro even if members of the ECB’s Governing Council aren’t.

This last day of the week brings the Eurozone current account numbers. October’s surplus was €30bn so it doesn’t take much work with a calculator to work out that almost the entirety of it comes from Germany! The EUR opens in Asia at USD1.2240, AUD/EUR0.6535 and NZD/EUR0.5970.

The Canadian market spent so long waiting for the Bank of Canada’s meeting on Wednesday that by the time the interest rate announcement came and the Monetary Report had been analysed, it almost died of exhaustion and indigestion. On Thursday, USD/CAD remained firmly bounded by the immediate post-BoC range of 1.2385-1.2470 and appears not to know quite what to do next.

Recall that the median forecast in the Reuters poll earlier in the week was for one rate increase in each of the third and fourth quarters, bringing the benchmark to 1.75 percent by the end of 2018. Analysts predict another hike in the first quarter of 2019. Economic growth is expected to average 2.2 percent this year, slightly higher than the 2.1 percent forecast in the previous poll in October. Expectations for 2019 were unchanged at 1.8 percent.

The challenge after the BoC Statement and Press Conference is to decide whether the references to uncertainties over NAFTA will be enough of take at least one of these hikes off the table. There doesn’t yet appear to be any consensus amongst the local banks on this so we may have to wait until the next round of weekly and monthly analysts’ notes to see if views have changed.

The CAD opens in Asia this morning at USD/CAD1.2435, AUD/CAD0.9945 and NZD/CAD0.9085.