By Phil Lynch
The NZD/USD has inched higher overnight, following the optimism in markets that the U.S. and China will come to some sort of trade agreement. This was further supported by renewed hopes of a Brexit deal, and on the back of US Federal Reserve board member Kaplan stating he has an ‘open mind’ on rate cuts. A lot of negativity has been priced into current levels of the NZD, which has recently risen off ten year lows – volatility in coming weeks is now likely.
Trade talks resumed overnight, and there was renewed optimism that deal would be struck to end the gruelling trade war. Speculation was rife that at least some common ground would be found. There have event been reports that a trade deal may include currency component in the deal.
Data overnight showed U.S. inflation numbers come in lower than expected, with the year on year number coming in at 1.7% vs expectations of 1.8%. The Core CPI number came in as expected at 2.4%. All in all – the numbers were a shade softer than expected and this supports the chances of a Fed rate cut later in October, which is currently priced in at 78% likelihood. A lower Fed Funds Target Rate could see the NZD/USD rise dramatically. That said – the RBNZ is also likely to cut rates in November. The question – who can cut rates further?
Meetings between UK and Irish leaders helped calm concerns about a no-deal Brexit come 31 October. The seesaw in currency continues, with the NZD/GBP plummeting 1.6% since yesterday’s open. This positive news has further supported the ‘risk-on’ sentiment that crept back into markets over the last day or two.
Draghi’s last day will be 31 October, 2019, and overnight his last ever monetary policy meeting minutes were released. It showed a split in expectations from board members, with more than a third of members opposing new bond purchases to stimulate the European economy.
Christine Lagarde of France is set as the next president of the European Central Bank (ECB), and will have a difficult job inheriting a fractured ECB board. Her first job might be to convince the German’s that more stimulus is needed.
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