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The Week Ahead – NZD higher as US-China trade talks boost confidence

Published August 20, 2018

The Kiwi opens this week in the green as confidence returns on US-China trade tensions, following news last week that the two powerhouse countries will resume talks to try to put an end to the escalating trade war.

The USD weakened on an unexpected shift lower on US consumer sentiment released Friday night which hit an 11-month low in early August. The decline in sentiment is expected to be driven by rising inflation and Trump’s protectionist stance on trade policy as import duties are pushing prices up and potentially causing a slowdown in consumer spending.

The AUD dipped on Friday afternoon following the Australian RBA Governor Lowe signaling a ‘steady as she goes’ message for monetary policy, but still insisted the next move when it comes is more likely to be an increase than a cut. He saw “no strong case” for any near-term adjustment to the current record low 1.50% official cash rate which has been stuck here for more than two years. Largely due to low inflation and weak wage growth. Lowe remarked wage growth and inflation will pick up “gradually” over the next few years as the labour market continues to tighten. Markets are not fully pricing in a rate hike till 2020.

Canada’s inflation came in much higher than expected at 3% in July vs forecast of 2.5% and supports the case for another rate hike later in the year, with analysts expecting this when the central bank meets in October.

Week Ahead – Global

Geopolitical and trade tensions will continue to cause concern and any escalation could weigh heavily on the kiwi. However, as tensions ease markets will return focus to the below economic announcements;

China and US officials meet to hold lower-level trade talks just before the new US tariffs on US$16 billion of Chinese goods are due to take effect – Tuesday and Wednesday

US Federal Reserve meets with some analysts saying the Fed could talk about the potential damage on rising interest rates and the rising USD, and how this can impact emerging markets, plus the US-Turkey crisis – Thursday

Jackson Hole Symposium – held every year since 1978, the Federal Reserve Bank of Kansas City sponsors a symposium on an important economic issue facing the US and world economies. Participants include prominent central bankers, finance ministers, academics, and financial market participants from around the world. Federal Reserve Chairman Jerome Powell’s speech at the symposium will be about “monetary policy in a changing economy” – Friday

Week Ahead – Local

NZ Dairy Auctions – Wednesday
NZ Retail Sales, economists forecasting a 0.4% increase in Q2 sales – Wednesday