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Kiwi Higher Over Long Weekend

Published June 4, 2019

The Kiwi Dollar starts the short week higher, gaining around 1 cent vs the US Dollar from last Fridays levels. The US Dollar is broadly weaker as trade wars, weaker global economic indicators, and growing expectations of a Fed easing policy have increased. Market participants are pushing bond yields lower as many hold the belief that the Federal Reserve will be forced to cut borrowing costs to contain the effects of US-China trade tensions.

Overnight the US ISM manufacturing sector data signalled a deflated position in May. The headline PMI fell to its lowest level since 2009 as output growth eased and new orders shrunk for the first time. Weak demand conditions and the ongoing trade war with China has led corporations to express the lowest degree of confidence regarding future output growth since measurable data has been available.

The Week Ahead

RBA Rate Decision

This afternoon sees the RBA announce its decision on interest rates. Markets are expecting a cut of 0.25% which has largely been priced into current levels. If there are no surprises from this afternoons decision then focus will turn to RBA Governor Lowe’s speech in Sydney tonight for clues on how many more cuts might be on the cards. The Kiwi Dollar will likely take direction from the AUD following the decision.

Trade Wars

Still no end in sight for the ongoing trade stand off between the US and China. Whilst there has been a general feeling that the an agreement will ultimately be reached, there is now a growing concern that the trade wars could be escalated, with neither side willing to back down. President Trump has now set his sights on Mexico, threatening a 5% tariff on Mexican imports starting on June 10th, and increasing in 5% increments until October.

US Data

As expectations of a US Fed easing stance gather momentum, economic data will be crucial in managing market expectations. Some big numbers due out this week including ISM Non-Manufacturing on Wednesday night, initial jobless claims on Thursday night, and the US Unemployment Rate to round out the week on Friday night.

ECB Rate Decision

The Euro has made good gains over the past few days largely on the back of USD weakness. This week’s see the ECB rate decision on Thursday night and while no change is expected, there will be much interest in the speech from ECB President Draghi the following day.