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Trump comments on FED and Greece exits its bailout after 8 years

By OFX

The market saw outflows from the USD during last weeks opening sessions, as hopes over the upcoming US-China trade negotiations gathered pace alongside comments from President Donald Trump. Trump was critical of the Federal Reserve and Jerome Powell in a Reuters interview and said he was hoping to get a little help from the Fed. The comments are not the first time that the President has stepped away from tradition and been critical of the Federal Reserve’s current rate hike path, with two hikes already this year and another on the near horizon.

Following this, the Federal Reserve released its latest minutes midweek, which showed that the FOMC is expected to continue to raise rates as needed. The initial reaction for the USD saw it sell-off, perhaps due to the fact that the Fed admitted they were concerned that GDP could slow in the second half of the year due to continuing trade disputes.

On the trade war front, US and Chinese officials began further trade talks in Washington and at midnight last night, the latest $16 billion worth of tariffs on Chinese imports went into effect. The expectations on the ongoing trade talks between the US and China the world's two largest economies are low as they are taking place between lower-level officials. Ending the week, the US has a slew of data releases, which included slightly hawkish numbers as both Continuing Jobless Claims and Initial Jobless Claims posted a better than expected result. Initial Jobless claims dropped to 210K from last weeks 212k vs. expectations of 217K.

The Canadian dollar began last week trading on broader market sentiment with base metals and energy prices on the rise. Gold and WTI both saw gains; Iranian sanctions imposed by the US are causing global oil giants to cut lucrative energy projects in Iran.

In other news, the Bank of Canada’s Senior Deputy Carolyn A. Wilkins outlined growing confidence in the macroprudential measures which she suggests, has improved the quality of household debt, in a speech on Tuesday. She also cautioned that higher debt levels would mean a more significant impact from rate hikes, perhaps tempering her earlier comments on improved household debt. The Loonie shifted slightly on the back Wilkins comments although the most significant gains were to come from the repercussions of President Trump comments. The on-going criticisms of the Federal Reserve took the shine off the greenback and saw it plummet across the board. Risk-sentiment shifted off-shore with the loonie being a primary benefactor.

Moving forward into the week, the domestic economic calendar remains light with the focus squarely placed on on-going US-China trade talks that are slated to start today.

Big news in Europe last week! After eight years, a lot of political maneuvering and €289bn later, Greece has now exited its bailout programme meaning it can now borrow funds once again on the capital market. For the Euro, which has been dipping into one-year lows of EUR/USD 1.13, the risk still remains in Turkey. Indeed one facet for the Euros slide to 1.13 were fears that Italy and Spain could be overexposed to Turkish debt. Currently, the market isn’t sold on the policies of President Erdogan and finance minister Albayrak with credit agencies S&P and Moody’s both cutting Turkey debt rating deeper into junk status.

Another key piece of news came out of Germany and German Bundesbank President and ECB member Jens Weidman, who has long be known as an interest rate hawk, once again reiterated his desire to exit the ultra-loose monetary policy that the ECB is currently employing and not delay the return to neutral rates. Weidman has also long been seen as the natural successor to Mario Draghi and the forerunner, however, there are now reports that Angela Merkel pushing for a German to have the top job at the EU Commission rather than the ECB (one country can’t hold both roles).

The EUR closed the week at 0.86 versus its US counterpart.

With the markets bereft of any concrete UK data to dig their teeth into between now and the end of the month, last weeks Brexit negotiations were a key focus of investors. As we had seen in the previous week, Brexit risks are still weighing on the pound and any more talk of disagreements, breakdown in negotiations or diverging ideologies will add to the drag on the sterling (even no news whatsoever will be perceived as negative). According to UK Brexit Minister Dominic Raab securing a Brexit deal is still the most likely outcome for the UK, however, Dr. Liam Fox’s comments are still ringing in the ears of many. The UK has until October to finalise negotiations, a date that is getting closer and closer.

The Australian Dollar managed to hold above 73c vs the U.S Dollar for the majority of last weeks trading sessions amid comment from President Trump on the back of an exclusive interview with Reuters. In it, Trump stated that he has “no time frame” for ending the trade dispute with China and also expressed his disappointment with the recent Federal Reserve hikes saying he wasn’t “thrilled” with the Fed Chairman Powell. Despite this, optimistic comments from Chinese officials, in the face of Presidents Trump's view that it was unlikely for them to reach an agreement, supported the local unit. The Chinese foreign ministry stated that they wanted to settle the trade dispute with the US via negotiations and added that they were hopeful that both sides could reach a good outcome.

On the data front, midweek saw modest gains before a slight correction, after the release of the RBA monthly Minutes where Governor Philip Lowe raised confidence amongst investors. He reiterated that the RBA will eventually raise interest rates if they were to see progress made on unemployment and inflation adding that any move will “likely be up not down”.

The Kiwi received an unexpected boost to begin last week as equity markets saw a slight move higher as calm was restored in the short term for Turkey, emerging markets and trade talks between the United States and China.

Furthermore, President Donald Trump stated that he disagrees with the Federal Reserve’s decision to raise interest rates and said he should be given some more help by the Fed. The remarks caused a sell-off for the Greenback and the Kiwi rallied as a result.

On the data front, we saw a bullish retail sales reading for the 2nd quarter of 2018. The seasonally adjusted reading of 1.1%, was a full 0.8% higher than the previous quarter, showing a more robust outlook for the local economy and pushed the NZD to a two-week high of 0.6718. The Core retail sales reading which excludes vehicle and fuel categories also showed a strong reading of 1.4% versus a forecast of 0.8% and points towards a stronger print for GDP figures due for release on September 20th.