NZD actually managed to finish Thursday not at the bottom of the FX performance table!
Friday 27 April, 2018
Daily Currency UpdateHold the front page – the big news is that the New Zealand Dollar didn’t finish in bottom place on our one-day performance chart on Thursday! During the Asia session NZD/USD made a fresh low for 2018 just below 0.7060 and then rallied up to 0.7090 before slipping a quarter of a cent in to the New York close. AUD/NZD is back (just) on a 1.06 ‘big figure’, whilst the flightless bird also gained a friendless euro to NZD/EUR0.5835.
The weakness of the Kiwi Dollar these past ten days has come despite the second highest 10-year bond yields in developed markets. Whilst all attention has been on US 10-year breaking through 3.0% and trading up to a 4-year high of 3.03%, New Zealand’s equivalent bond is now yielding 2.92%, just 11 basis points under the US. Of course, investors trading currencies don’t take positions for a decade and don’t do their funding in the 10-year maturity but don’t be surprised – when the Kiwi eventually turns – to hear talk of its attractive long-term interest rates. For the moment, we’re in that phase of the cycle where the NZD is falling simply because it’s falling: momentum-driven algorithmic strategies exaggerate the move even without fresh incoming economic news flow to validate it. Perhaps we have to see the NZD/USD below 70 cents for fundamental investors to step in on the other side of the trade but it seems a bit late to be getting too bearish right now.
The next focus of attention locally in New Zealand will be the trade figures this morning as well as the April consumer confidence numbers. The New Zealand Dollar opens in Asia this morning at USD0.7065 and AUD/NZD1.0690.
Key MoversThe good news for the Aussie Dollar is that on Thursday in Europe, AUD/USD broke Wednesday’s 0.7553 low by only 5 pips before subsequently rebounding. The bad news is that the rebound extended only as far as 0.7585 and heading in to the New York close it was back down once more at a fresh cycle low of 0.7550. Even AUD/NZD is back on a 1.06 ‘big figure with the AUD down against every currency except the euro.
NAB yesterday released their Quarterly SME Survey which complements the bank’s comprehensive Quarterly Business Survey (QBS) covering larger businesses. Small and Medium Enterprise (SME) business conditions were unchanged in Q1 2018 at +12, while SME business confidence declined 2pts in Q1 to +6pts. According to Alan Oster, NAB Group Chief Economist “SME business conditions remained at their highest level since the GFC and while SME business confidence slipped in the March quarter it too remains above average… Across industries, health again reported the strongest business conditions. While retail continues to be the weakest sector, there has been a large fall in property services conditions, likely reflecting the cooling in housing markets.”
This morning we’ll have the quarterly PPI numbers, though these are generally only ever of interest as an aid to guessing the CPI. As we’ve already had that data release, expect today’s figures to garner no more than passing interest for even the geekiest fan of economic statistics. Instead, analysts will be still poring over the detail of Tuesday’s CPI release to write their monthly updates, though there was probably not enough fresh news to make anyone change their well-established views on RBA monetary policy and interest rates. The Aussie Dollar opens in Asia this morning at USD0.7555, with AUD/NZD at 1.0695 and GBP/AUD1.8425.
At the very beginning of this week, the British Pound fell below USD1.40 and has stayed there ever since. This was all about the US Dollar rather than the Pound, however, and the GBP is up against all the other major currencies. In the European morning yesterday, GBP/USD was sold down to a 6-week low just above 1.3905 but after a squeeze to 1.3995 during the ECB Press Conference when it was initially dragged higher with the EUR, the GBP subsequently lost more than half a cent in to the New York close at 1.3915.
According to the trade association UK Finance, British banks approved fewer mortgages for home-buyers last month than they did a year ago while credit card lending growth held broadly steady. Banks approved 37,567 mortgages for house purchase last month, down from 38,035 in February and 10 percent less than in March 2017. There was a rising trend in mortgage approvals for the first three months of 2018 although the number is slightly lower than the same period in 2017. Seasonally adjusted net credit card lending increased by just 10 million pounds on the month - the smallest rise since April 2016 - though the annual growth rate was little changed at 5.8 percent.
Separate figures from the Society of Motor Manufacturers and Traders show output from British car factories plunged by 13 per cent in March. In the first quarter of 2018, 440,000 cars rolled off British assembly lines, nearly 30,000 fewer than a year ago. The cumulative 12-month sum has fallen to 1.64 million. The SMMT said, ““A double-digit decline in car manufacturing for both home and overseas markets is of considerable concern… It’s vitally important that the industry and consumers receive greater certainty, both about future policies towards diesel and other low-emission technologies, and our post-Brexit trading relationships and customs arrangements.” The GBP opens in Asia this morning at USD1.3915, GBP/AUD1.8425 and GBP/NZD1.9700.
The US Dollar powered ahead again on Thursday, rebounding impressively from an initial sell-off during the ECB Press Conference. Its index against a basket of major currencies opened around 90.80, fell to just below 90.60 in the European afternoon, then surged to a high of 91.20; its best level since way back on January 12th. It has broken above its 100-day moving average and now eyes the 200-day measure at 92.00. The move has been so dramatic because it was largely unanticipated and flies in the face of many (indeed most) bank strategists who have been calling the USD relentlessly lower all year. We may now have to wait until they turn ‘tactically bullish’ (in other words, adjusting their forecasts to reflect a move in the spot rate which has already happened) before the Dollar reverses lower!
After a lull in the US economic calendar, there were plenty of numbers released Thursday with initial jobless claims, wholesale inventories, trade and the durable goods orders. The weekly jobless claims were far better than had been anticipated, tumbling by 24k to just 209k; the lowest in 49 years. The Labor Department said some of the decline was due to education workers returning after Spring break, but they do this every year! March durable goods orders rose 2.6%, although the core ex-transport number (which smooths out the lumpy impact of aircraft) was unchanged on the month. In a bit of good news for the President’s mood, The March deficit in goods trade fell to $68bn from $75.9bn as imports fell 2.1% m/m whilst exports rose 2.5%. Making America Great Again!
Adding up the impact of all the various bits of incoming economic data, the Atlanta Fed left its estimate of Q1 GDP unchanged at 2.0%. This is the last update before the official Q1 numbers are published later today so we’ll get a good cross-check on how accurate their statistically fiendish model actually is. The USD index opens this morning in Asia around 91.15.
The Single European Currency had an ultimately very poor day on Thursday, finishing lower against every major currency, even though at one point during ECB President Draghi’s Press Conference, it caught quite a bid lifting EUR/USD half a cent from 1.2155 to 1.2205. It was only after the event was over that the EUR then fell sharply, tumbling all the way to a low in New York of 1.2100; its weakest since January 12th. AUD/EUR moved up to 0.6240 with NZD/EUR at 0.5835.
Commenting about the European Central Bank’s interpretation of the recent softer than expected run of economic data, Mr Draghi said, “The bottom line of this discussion is in my view, it’s basically caution in reading these developments, caution tempered by an unchanged confidence in the convergence of inflation to our inflation aim.” He pointed to temporary factors such as bad weather, the early Easter timing and strikes but had to acknowledge the slowdown was widespread across EU countries and sectors. “The interesting thing is that we didn’t discuss monetary policy per se,” he said. “It’s quite clear that since our last meeting, broadly all countries experienced, in a different extent of course, some moderation in growth or some loss of momentum.”
Draghi’s comments that exchange rate volatility were not discussed at the Council Meeting were initially taken as a signal to bid the EUR higher. However, and making a mockery of the whole process, the usual anonymous ECB sources were quoted on newswires after the Press Conference had finished saying policymakers were keen not to upset investor expectations for a gradual withdrawal of the ECB’s monetary stimulus, despite some concerns about the state of the economy. Policymakers remained comfortable with the policy path priced in by investors, the sources said. The EUR opens in Asia today at USD1.2100, AUD/EUR0.6240 and NZD/EUR0.5835.
The USD/CAD exchange rate is still firmly stuck on a 1.28 ‘big figure’ where it has been for every single minute since mid-morning in North America on Monday. Optimism around a possible NAFTA agreement has helped cap the upside even as oil prices have moved lower. Keeping up with the US Dollar means the CAD has strengthened on all its crosses with AUD/CAD at 0.9720 and NZD/CAD at just 0.9095.
Canadian Foreign Minister Chrystia Freeland said that good progress has been made at the NAFTA trade talks on the key issue of auto rules, though the threat of proposed U.S. steel and aluminum tariffs coming into force next week clouded the mood. According to Reuters, Freeland, U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo met for a second straight day in a push to seal a quick deal on revamping the North American Free Trade Agreement. She told reporters, “There is a very strong, very committed, good-faith effort for all three parties to work 24/7 on this and to try and reach an agreement… “I think we made some good progress. We’re very much working on a set of proposals based on the creative ideas the U.S. came up with in March and I think there was good constructive progress.”
Facing the Committee on Banking, Trade and Commerce, Bank of Canada Governor Stephen Poloz said he was "much more encouraged" about the economy than he had been when he last talked to the committee in November 2017. Pressed by one senator about what she called the bank's ‘fairly rosy’ outlook that it issued on April 18, he replied, “When we describe the economy, as you say, in rosy terms, it is, I would say, more like finally positive terms… For the economy as a whole, it has put the adjustments to the oil price shock behind us, but we still have softness in several areas of the country." The Canadian Dollar opens in Asia this morning at USD/CAD1.2875, AUD/CAD0.9720 and NZD/CAD0.9095.
- NZD/AUD: 0.9320 - 0.9410 ▼
- GBP/NZD: 1.9600 - 1.9815 ▼
- NZD/USD: 0.6970 - 0.7150 ▼
- NZD/EUR: 0.5795 - 0.5880 ▼
- NZD/CAD: 0.9000 - 0.9190 ▼