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The Week Ahead in FX Markets – Kiwi opens in 0.63’s for third time in three weeks

Published October 7, 2019

By Phil Lynch

The NZD/USD has bounced back to open this morning in the 0.63’s for only the third time in three weeks. The week ahead is light on economic data (relatively) but will see an attempt for trade talks between the US & China to kick-off again.

Markets are beginning to set their minds to the 31 October US Rate Decision (NZ time), with markets pricing in a 74% chance of a cut. It appears the Fed’s policy makers are divided over the next decision, with the Fed’s Powell repeating that the U.S. economy is “in a good place”, with other policymakers suggesting the economy is stable and that the US economy is not headed to a recession. It may well be that economic data will drive the decision – and on Friday night we saw some key data showing mixed results.

US Labour Report (Saturday Morning just gone)

The big news over the weekend was that the US labour market proved to be performing better than leading indicators would have us believe. The headline number of new jobs showed 136k new jobs were added (behind forecasts of 145k), but the previous months results were revised higher by 38k new jobs. This was supported by a 50-year low in the Unemployment Rate of 3.5%.

The only worrying sign was the Average Earnings dropping to 2.9% from the previous month’s 3.2% growth rate. This was all that was needed to give the U.S. dollar doves a reason to maintain expectations of another U.S. rate cut, and thus allowed the kiwi to recover some lost ground.

US CPI Data (Friday Morning this week)

This Friday morning at 1:30 AM sees the release of U.S. CPI data. Markets are once again expecting a reasonably solid number of 1.8% – not from the U.S. Fed’s target of 2.0%, and above last months result of 1.7%. Core CPI on the other hand, is expected to show even higher rates of inflation at 2.4%.

What is the Fed Thinking? 

This Thursday morning at 7:00 AM the FOMC Meeting Minutes are released, and markets will be able to get a sense of what the Fed is thinking when it comes to rate cuts. Like other central banks, the Fed is getting ahead of the economic forecasts and cutting interest rates. Despite the Fed being cautious about their wording, markets are pricing in further rate cuts from the U.S. Fed over the coming 12-months, which would take their rate to 1.00%. It is time for the Fed to start playing catch up with the likes of the RBNZ and the RBA.

How is the NZ Government Doing – a Look at their Books

Tomorrow afternoon at 1:00 PM, Treasury are publishing the Financial Statements for the Government of New Zealand, for the year ended 30 June 2019. The results are expected to be reasonably healthy – but the question remains – will the Government increase their spending to support our economy?