Aussie and Kiwi in Reverse, with Trump Still the USD Dictator

Stats out of NZ and Australia weighed on the respective currencies early, with the Dollar making an early move. It’s all in Trump’s hands later.
Bob Mason
U.S. Dollar and Commodities
U.S. Dollar and Commodities

Earlier in the Day:

Following a relatively quiet start to the week, economic data released through the Asian session was on the heavier side this morning, with key stats including trade figures out of New Zealand and 2nd quarter inflation figures out of Australia.

For the Kiwi Dollar, it was a disappointing set of numbers, with the year-on-year trade deficit widening from NZ$3,680m to NZ$4,030m in June, while month-on-month, May’s NZ$208m surplus reversed to a NZ$113m deficit in June.

  • The value of annual imports rose NZ$374m more than exports, taking the trade deficit to the largest in 10-years, according to figures released by NZStats.
  • For the June 2018 year, imports rose by NZ$6bn to NZ$59.6bn worth of goods, with the rise attributed to NZ$24bn worth of intermediate goods imports, up from NZ$3bn from June 2017 year, the increase coming off the back of a NZ$850m rise in the import of petroleum and products (excl. petrol).
  • In the June 2018 year, New Zealand exported NZ$55.5bn worth of goods, rising by NZ$5.6bn from the June 2017 year.
  • The increase in exports was attributed to a NZ$1.7bn rise in dairy products, meat and edible offal, which rose by NZ$1bn and forestry products that increased by NZ$0.74bn.

The Kiwi moved from $0.68022 to $0.67959 upon release of the figures, before easing to $0.6792 at the time of writing, a loss of 0.15% for the session, with the numbers having less of an impact, the strong demand for goods being taken as a positive.

For the Aussie Dollar, inflation figures were on the disappointing side, from an RBA perspective at least:

  • Year-on-year, consumer prices rose by 2.1% in the 2nd quarter, which came up short of a forecasted 2.2%, whilst the rate of inflation accelerated from the 1st quarter’s 1.9%.
  • Quarter-on-quarter, consumer prices rose by 0.4%, at the same pace as in the 1st quarter, whilst falling short of a forecasted 0.5%.
  • Trimmed mean consumer prices rose by 0.5%, quarter-on-quarter, which was in line with forecasts and 1st quarter moves.

Contributions to the 0.4% quarter-on-quarter rise came from:

  • Automotive fuel, which rose by 6.9%; a 3.1% rise in prices for medical and hospital services and a 2.8% rise in prices for tobacco, which were partially offset by falls in prices for domestic holiday travel and accommodation (-2.7%); motor vehicles (-2%) and vegetables (-2.9%).

The Aussie Dollar moved from $0.74367 to $0.74151 upon release of the figures, before easing to $0.7404 at the time of writing, down by 0.26% for the session.

Elsewhere, the Japanese Yen was down by 0.09% to ¥111.3 against the Dollar through the morning, with direction now in the hands of the BoJ policy meeting next week, the recent move to ¥111 levels off the back of speculation that the BoJ is looking to shift on policy having yet to be refuted by Kuroda or any other member of the Board.

With inflation still sitting well short of the BoJ’s objective and household spending continuing to disappoint, it’s quite a shift in sentiment when considering the fact that the Japanese economy contracted in the 1st quarter and the global economy is at risk of unravelling amidst the ongoing trade war.

Concerns over extended accommodative policy effects have led to the expectation of a sudden shift, which is expected to focus on bond yield targets rather than anything more dramatic near-term.

In the equity markets, it was mixed bag with ASX200 down 0.3% and the CSI300 flat, while the Hang Seng and Nikkei were up 0.87% and by 0.45% respectively at the time of writing, a pullback in the Yen supporting the Nikkei, while some profit taking, following the recent rally in the CSI300 weighed early on.

The Day Ahead:

For the EUR, economic data scheduled for release out of the Eurozone this morning includes Germany’s July’s IFO Business Climate Index and jobseeker figures out of France.

Following a better than expected July manufacturing PMI out of Germany on Tuesday, coming off the back of a recent bounce back in both factory orders and industrial production, improved business sentiment should provide the EUR with further support, though with EU President Juncker meeting Trump later today, there could be some caution, with business climate forecasts pointing to a further deterioration in business conditions going into the 3rd quarter.

At the time of writing, the EUR was down 0.07% to $1.1679, with today’s stats out of Germany and Juncker’s meeting with Trump in focus ahead of tomorrow’s ECB policy meeting and the all-important press conference.

For the Pound, economic data scheduled for release through the day is limited to UK mortgage figures that are unlikely to have a material impact on the Pound that has managed to stand its ground in spite of last week’s data and the lack of progress on Brexit, with Prime Minister Theresa May’s announcement that she will be taking the lead on Brexit negotiations providing support.

At the time of writing, the Pound was down 0.04% to $1.314, with sentiment towards Brexit the key driver, the question being whether Theresa May will be able to shake the EU from its desire to see Britain leave without a deal.

Across the Pond, economic data out of the U.S is limited to June new home sales figures that are forecasted to hit reverse following a rebound in May.

In the wake of some particularly weak housing start and building permit figures, which raise further concern over inventories, soft new home sales numbers, off the back of the further decline in existing home sales, will be a worry, though there’s unlikely to be too much of an impact on the Dollar and general sentiment towards the U.S economy.

At the time of writing, the Dollar Spot Index was up 0.04% to 94.647, with today’s stats and the Oval Office the key drivers through the day.

For the Loonie, it’s another quiet day ahead, with no stats scheduled for release through the remainder of the week, the lack of data leaving the Loonie directionless following last week’s positive retail sales and inflation figures, which could see the Loonie all the more sensitive to trade chatter and any updates on when NAFTA negotiations will resume.

At the time of writing, the Loonie was down 0.06% to C$1.3163 against the U.S Dollar.

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