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NZD Rises on Trade Optimism and Weak US Data

Published December 5, 2019

The NZD holds above the .6500 levels against the USD on weak US data and ahead of today’s RBNZ capital review.  The pound is the best performing currency despite the latest election polls not showing a continued widening in favour of the Conservatives over the Labour party.

Trump See-Saws on Trade Talks

President Donald Trump commented that trade talks with China are going “very well”, following yesterday’s threat that the trade deal may have to wait until after the 2020 US elections. Stocks rebounded overnight on renewed trade optimism as the two power-house countries come closer to agreeing how many trade tariffs would be rolled back in the “phase one” deal and provided a lift for commodity currencies.

US Private Payrolls Hit Near Decade Low

The USD dipped following a surprisingly weak ADP report, with private payrolls rising at its slowest pace since May.  At 67k new jobs, this sharply missed forecasts of 140K and job losses were reported in the factory sector. Focus now shifts to Friday nights non-farm payrolls with expectations for 180k new jobs added.

The US service sector activity slowed in November with the service index dropping 0.8 pts to 53.9 in November, business activity plunged 5.4 pts to 51.6.  Trade tensions and worker shortages remain key concerns and resulted in production hitting its lowest level in a decade.

Australian GDP Lags in Q4

Australian gross domestic product (GDP) rose 0.4% in the fourth quarter, missing expectations of 0.5% and down from the previous quarters 0.6%.  Annual growth ticked up to 1.7%, from a revised 1.6%, however the rate of growth remains well below the 2.75% pace considered “trend”.  The expansion was largely driven by strong exports and Government spending.  Three rate cuts and a personal income tax reduction this year have failed to give the economy a major boost.  Markets are now pricing in a 50/50 chance of a rate cut in February and there’s an increased chance of a move to 0.25%

In Canada, the Bank of Canada held interest rates steady at 1.75% as they sited signs of global growth stabilizing.

Locally, the Reserve Bank of New Zealand will release its final decision on the level of capital banks will require to hold at midday today with the RBNZ already commenting the commitment will be significantly higher.