AUD/NZD falls on to 1.04 for the first time since July last year
Daily Currency UpdateUnlike its Aussie cousin, the New Zealand Dollar did make a fresh high against the USD on Thursday, albeit only marginally. NZD/USD hit a best level just above 0.7375 on Wednesday but during the European morning yesterday, managed to extend its gains to a high around 0.7385. This outperformance saw the AUD/NZD cross trade down on to a 1.04 ‘big figure’ for the first time since July last year.
The speech from RBNZ Assistant Governor and Head of Economics John McDermott focused on the evolution of the monetary policy framework over time rather than any fresh message about how the policy itself might currently be changing. In terms of the new arrangements announced by the Labour Government, the Reserve Bank of New Zealand Act will formalise a monetary policy committee (MPC), and add members from outside the Bank, ‘externals’, onto the committee. The Act will allow the MPC to have between five and seven members, but there will be seven initially, and there will always be more internal than external members. All members will be nominated by the Reserve Bank Board and appointed by the Minister of Finance. Details of the first Charter are yet to be determined, but the Minister intends for the MPC to aim to reach decisions by consensus, and for non-attributed votes to be published where there is not consensus. The Minister also intends for non-attributed records of meetings to be published that reflect any differences of view among the MPC.
Statistics New Zealand published March credit card spending numbers. Seasonally adjusted total retail spending on credit and debit cards increased 1.0% during the month, beating consensus estimates of a 0.5% monthly gain. Core retail spending, excluding fuel and vehicles, rose 1.6%. Card-holders across all industries made 151 million transactions in the month. The average value of $49 was unchanged on the year and down from $50 in February. Today we’ll get the manufacturing PMI survey, ahead of which the New Zealand Dollar opens in Asia this morning at USD0.7375 and AUD/NZD1.0515.
Key MoversThursday was another day of very tight ranges for the AUD/USD pair, though the feeling persists that with a near 400-point rally in the DJIA, it really should have done somewhat better. Having opened around 0.7755, only 25 pips separated the high and low of the day and by the close of business the AUD finished marginally down against the USD, a little more against the CAD, GBP and NZD but up against a very weak EUR.
In his speech in Perth, RBA Governor Phil ‘slow and gradual’ Lowe gave a thorough assessment of the economic differences, and similarities, across Australia’s major States. In aggregate, he noted, “the overall picture for the national economy is one of gradual improvement: businesses are feeling better than they have for some time and they have increased their investment and hiring. It is therefore reasonable to expect that economic growth in 2018 will be stronger than the 2.4 per cent outcome we saw last year.” However, one of his main themes nationally – not just in Western Australia – was “slow growth in wages. Wage increases around 2 per cent have become the norm in many parts of the country. This is in contrast to the 3 to 4 per cent increases that were the norm for most of the past two decades. This change is having a sobering effect on the finances of many households. It is also contributing to inflation being low. The latest data suggest that the rate of wages growth has now troughed, with a pick-up evident in the most recent quarter. A further lift is expected, but it is likely to be only gradual.”
On monetary policy specifically, the Governor said, “it is more likely that the next move in the cash rate will be up, not down, reflecting the improvement in the economy. The last increase in the cash rate was more than seven years ago, so an increase will come as a shock to some people. But it is worth remembering that the most likely scenario in which interest rates are increasing is one in which the economy is strengthening and income growth is also picking up… The Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.” The Aussie Dollar opens in Asia this morning at USD0.7755, with AUD/NZD at 1.0515 and GBP/AUD1.8350.
The British Pound had a pretty mixed morning on Thursday but as the euro came under heavy selling pressure, GBP/EUR broke out of its 2018 range from roughly 1.1200-1.1475 and moved on to a 1.15 ‘big figure’ for the first time since June last year. This pushed the GBP higher against all the major currencies we follow closely here, despite some generally soft UK economic data. Gains ranged between three and eight-tenths of a point and with GBP/USD almost hitting its 2018 high of 1.4270, the Pound ended the day with a clear gap at the top of the FX leaderboard.
In economic news, the UK’s property surveyors issued the most downbeat assessment of the housing market for five years. The well-respected Royal Institution of Chartered Surveyors survey said that in March demand from buyers fell for the 12th month in a row, new instructions from sellers declined for the seventh consecutive month, and prices were flat nationally. RICS measures confidence in the property market by balancing surveyors seeing price rises against those seeing price falls. It said the figures were the lowest since 2013 with declines in London and the southeast being offset by gains in the East Midlands, Northern Ireland and Wales. The RICS Chief Economist said, “The findings provide little encouragement that the drop in housing-market activity is likely to be reversed anytime soon… Apart from the implications this has for the market itself, it also has the potential to impact the wider economy contributing to a softer trend in household spending.”
The British Chambers of Commerce published what it claims to be the UK’s largest and most authoritative private-sector business survey. Based on the responses of over 7,100 businesses, the survey shows that UK economic growth remained subdued in the first quarter of 2018, despite a strong export performance. It reported that fewer firms in the manufacturing sector saw an increase in domestic orders, and the balance of firms reporting an increase in domestic sales is now at its lowest level since Q4 2016. ““What growth we see in the UK economy is due principally to strong global trading conditions, rather than domestic demand, which remains muted. Uncertainty, recruitment difficulties and price pressures remain persistent concerns for businesses of every shape and size, even if short-term confidence levels remain resilient. Even with a standout performance from manufacturing exporters able to reap the benefits of lower Sterling, the UK economy as a whole is treading water, rather than powering ahead.” The GBP opens in Asia this morning at USD1.4225, GBP/AUD1.8350 and GBP/NZD1.9280.
We noted here yesterday that for the S&P 500 Index, there have already been 27 1% moves in the first 67 trading days of 2018. After Thursday’s price action, it’s now 28 from 68 as the index had another 30-point high-low trading range. It was also a pretty good day for the US Dollar which responded positively to the higher US CPI figures (albeit in line with consensus forecasts) and a slightly more ‘hawkish’ tone from the FOMC Minutes. The USD index opened around 89.10 but moved steadily higher to a best level in the European afternoon of 89.55 before giving back a little of these gains into the New York close.
Early in the North American morning, President Trump tweeted, “Never said when an attack on Syria would take place. Could be very soon or not so soon at all! In any event, the United States, under my Administration, has done a great job of ridding the region of ISIS. Where is our “Thank you America?” Just before lunchtime locally, US Defence Secretary Jim Mattis told a hearing of the House Armed Services Committee that the White House is still yet to make any decision on potential military attacks in Syria. We have not yet made any decision to launch military attacks into Syria… When I leave here, I go to a meeting where the National Security Council will be meeting on this and we will take forward various options to the President.”
Whilst the Minutes of FOMC meetings are often little guide to policymakers’ thoughts as there’s such a variety of opinion expressed and recorded, one thing which was noteworthy about the latest set was the uniformity of views. “All participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months… In addition, all participants expected inflation on a 12-month basis to move up in coming months.” Where there was any difference of view, it was largely with a ‘hawkish bias’. A number of participants said the outlook for the economy and inflation could lead to a slightly steeper path of rate increases over the next few years and some suggested that at a given point the Fed might have to change its statement language to acknowledge monetary policy would have to move to a neutral or “restraining factor” for economic activity. The USD index opens in Asia this morning at 89.35.
The euro had a pretty poor day on Thursday. Its best level of the day came early in the Asian session just below 1.2380 and this, in turn, was lower than the high of the previous day. During the European morning a soft set of economic numbers knocked EUR/USD a quarter of a cent lower whilst the European Central Bank’s account of the March monetary policy meeting took it down a further 20 pips to an intra-day low just above 1.2300; matching its lowest level on Tuesday.
Eurozone industrial production was much weaker than expected in February, as a jump in energy output failed to offset a slump in the production of capital goods and consumer goods. The European Union’s statistics office Eurostat said industrial production in the 19 countries sharing the euro fell 0.8% m/m for a 2.9% y/y rise, much weaker than the +0.1% m/m increase which had generally been expected. The softness in February was due to falling production in all categories — intermediate goods, capital goods and durable and non-durable consumer goods — except energy, the output of which surged 6.8% on the month after a 1.1% monthly drop in January. By country, weakness in Italy and Germany offset strength in Spain and France. Elsewhere, big declines in Portugal and Ireland were the main constraints, while production rose solidly in the Netherlands.
Whereas the US FOMC was unanimous in its view on the economy and inflation, the ECB is still deeply split. Its account of the March Council Meeting said, “The view was put forward that the Governing Council’s criteria for a sustained adjustment in the path of inflation could be assessed as close to being satisfied over a medium-term horizon. However, the broadly agreed conclusion was that the evidence for a sustained rise in inflation towards levels consistent with the Governing Council’s inflation aim was still not sufficient.” As for the exchange rate, “Some caution was voiced, as the more recent developments in the euro exchange rate and in financial conditions in part reflected changing perceptions about monetary and fiscal policies, domestically and globally, as well as rising risks of protectionism and heightened market sensitivity to communication, rather than further improvements in domestic economic fundamentals." The EUR opens in Asia today at USD1.2325, AUD/EUR0.6290 and NZD/EUR0.5985.
In our North American commentary on Thursday we noted that, “CAD took top spot on Wednesday but couldn’t hold on to its best levels. Is a pause now due?” In the short-term at least, the answer appears to have been ‘yes’. USD/CAD moved up from an opening level of 1.2580 to a high in the European afternoon of 1.2620 and the CAD lost ground against the GBP, AUD and NZD; finishing second from bottom on our one-day performance table. After such a good run recently and with a lot of banks now recommending long CAD positions, a lot of good news appears now to be in the price.
In an interview with The Times newspaper, Canadian Prime Minister Justin Trudeau said there is “no way” the White House will extend steep tariffs on American imports of steel and aluminium to include countries like Britain and Canada and said Canada was confident that its exemption will be extended as it renegotiates the North American Free Trade Agreement with the US and Mexico. “The other story in this is the number of governors, industry leaders and business people and congress members in the United States who have assured me that there’s no way that this will move forward because it would be so detrimental to the exact families and workers that the president so relied upon for his electoral success… “So we take seriously the deadlines and the positioning of the American administration, but we are confident that the Canadian exemption to steel and aluminium tariffs is secure.” Asked about the present dispute between the US and China, he said that Canada would continue to sign more trade agreements “even as the world is perhaps going through questions about globalisation”.
The Canadian leader is due to attend the Summit of the Americas in Peru over the coming days before flying to London for the Commonwealth heads of government meeting next week. The Canadian Dollar opens in Asia this morning at USD/CAD1.2590, AUD/CAD0.9765 and NZD/CAD0.9290.
- NZD/AUD: 0.9455 - 0.9590 ▼
- GBP/NZD: 1.9120 - 1.9350 ▼
- NZD/USD: 0.7320 - 0.7400 ▼
- NZD/EUR: 0.5940 - 0.6000 ▼
- NZD/CAD: 0.9245 - 0.9335 ▼