The Kiwi Dollar starts the new week near a 5 week high, around 1% higher from last week’s open. The NZD has built on gains made throughout last week, benefitting from better than expected local inflation numbers, a broadly weaker US Dollar, and positive market sentiment due to Brexit developments and optimism over the US-China trade negotiations. However a certain degree of uncertainty has now returned to markets after the UK parliament voted on Saturday against supporting Boris Johnson’s Brexit agreement with the EU.
In a major blow to UK PM Boris Johnson, parliament voted to postpone a decision on whether to back his Brexit deal with the EU. The British government have indicated that the UK will leave the EU on the 31st of October despite the fact that Johnson was forced to send a letter to the EU requesting a delay.
Chinese Growth Slowing
Data released on Friday showed China’s Q3 GDP growth slow to 6.0% from 6.2% in Q2, and lower than market expectations of 6.1% growth. While not a huge miss, the numbers are significant given the size of China’s economy.
THE WEEK AHEAD
Not a lot of major data on the local front in either NZ or Australia this week, with both currencies likely to be heavily influenced by Brexit developments, US-China trade negotiations, and the performance of the US Dollar.
Without doubt the big issue facing markets this week is how the Brexit saga will pan out. Recent gains in riskier assets could be reversed if a Brexit agreement is once again delayed. Although media sources are now reporting increasing support for Johnson’s deal. Still more to play out over the next few days.
Will the Fed Cut Rates Next Week?
The Kiwi Dollar made good gains last week on USD weakness, and the direction of the USD will continue to be a major influence this week. The greenback has been under pressure over the past few weeks as markets increase bets on a Fed rate cut in October. A 0.25% cut is nearly fully priced in for October 30th. While there is not a lot of major data this week out of the U.S, any results will be closely watched including durable goods orders and initial jobless claims due out on Thursday. It remains to be seen if the US Fed will continue to reverse the four rate hikes from 2018, but more weak data out of the U.S will likely lead to a further depreciation in the USD.
U.S-China Trade Negotiations
Outside of Brexit, US-China trade negotiations will also continue to be a major influence on market sentiment and risk appetite this week. Talks continue, with US officials saying both sides are working on ‘phase one’ of a trade deal. President Trump and Chinese President Xi Jinping are expected to meet next month to possibly sign off on the deal. Any signs that an agreement is getting closer will be positive for risk appetite and lend support to riskier assets, and could be positive for the New Zealand Dollar.
ECB Rate Decision
The ECB will announce its monetary policy decision early Friday morning (NZ Time), in what is the final meeting of Mario Draghi’s term as president. No change to rates is expected this time around, following the ECB’s decision last month to cut rates and resume its bond-buying program. Of more interest will be President Draghi’s speech shortly after the rate decision announcement.
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