The Kiwi Dollar begins the week with a positive tone, gaining over a cent from this time last week. Improving market sentiment has seen safe haven assets Gold, Silver, JPY, and CHF all lose ground over the past few days after recent gains, and has boosted the NZ Dollar from its recent lows below the .6300 level. Also lending support to the Kiwi over the weekend was a weaker US Dollar which lost ground after worse than expected employment data on Saturday morning.
Non-farm payrolls increased by 130,000 in August, following on from July’s reading of 159.000, but was below market expectations of around the 160,000 level. The unemployment rate itself remained at historical low levels and was unchanged at 3.7%. The US Dollar came under pressure after the data release as doubts were once again cast over the state of the US economy. The numbers suggest that hiring has slowed, but remains durable in the face of global economic weakness and the trade war with China. President Trump manged to put a more positive spin on the payroll data, tweeting “JOBS JOBS JOBS!”.
More of the same themes in the week ahead with a focus on trade wars, central bank monetary policy, Brexit developments, and U.S data. Little in the way of announcements out of NZ or Australia, with the Kiwi Dollar likely to take direction from overseas developments and market sentiment.
With the US Fed rate decision not scheduled until next week, all attention will be on the ECB decision on Thursday night NZ time, followed by ECB President Draghi’s speech shortly after. Both the U.S and Euro Zone are expected to loosen policy but the bigger question is by how much, and what else they may have in store for the coming months. Thursdays ECB meeting is expected to deliver an easing, with expectations of a minimum of a 10 basis point cut and restarting quantitative easing. President Draghi is leaving office on October 31st and a cut could be well timed ahead of the regime change.
The Federal Reserve is widely expected to cut interest rates next week at its upcoming September 17-18 meeting. The Fed cut interest rates in July for the first time since the financial crisis in 2008, and renewed concerns of an economic recession and the ongoing trade war with China looks to have more cuts on the cards. As mentioned, the big question is how much and when? US Fed Chair Jerome Powel said over the weekend that the Fed will continue to act ‘as appropriate’ to sustain U.S growth, and is keeping a close eye on business uncertainty stemming from trade policy and other global concerns. He also mentioned not wanting to let inflation undershoot the 2% target too persistently. So, some key data releases this week including U.S inflation on Thursday night and retail sales on Friday night will have markets watching closely.
Trade war developments will no doubt continue to impact market sentiment and risk appetite this week. White House advisor Larry Kudlow said no dates have been set yet for the touted talks with Chinese officials in Washington next month, and that the hope is for “near term” progress, to avoid having to take more tariff actions.
The British Pound bounced back strongly last week despite continued Brexit noise. On Friday, opposition parties didn’t support PM Johnson’s call for an early election before the EU summit on October 17th. This is seen as a bid to force him to seek an extension from the EU on the October 31st Brexit deadline. The Pound gave back some of its gains on this news but still starts the week 2% higher than a week ago. More GBP volatility expected this week as Brexit news is released.
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