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.
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.
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.
© Copyright - EncoreFX, 2018.The information in this post is provided for general information purposes only and has been prepared without taking into account any person’s objectives, financial situation or needs and, accordingly, it does not constitute personalised financial advice under the Financial Advisers Act 2008, nor does it constitute advice of a legal, tax, accounting or other nature to any person. Before acquiring any financial services or products from EncoreFX, you should consider the appropriateness of the information having regard to your own objectives, financial situation or needs. We recommend that investors seek advice from their usual adviser before taking any action. EncoreFX (NZ) Ltd is a registered Financial Services Provider (FSP 461386), and is a licensed derivatives issuer under the Financial Markets Conduct Act 2013. EncoreFX (NZ) Ltd has lodged a Product Disclosure Statement (PDS) for each of our derivatives with the Registrar on 21-Dec-2016. A copy of each PDS is available from us or from the Registrar at www.business.govt.nz/disclose.