Currency View by OFX

Last week’s news

  • It has been a nauseating week for market participants flipping between gains and losses as traders begin to weigh in on conflicting comments around how quickly the U.S. & China are progressing on solving their trade war dispute. A Chinese official last week stated that the U.S. agreed to remove “tariffs in phases as progress is made”. President Trump disputed this allegation a day later stating that the U.S hadn’t agreed to anything on this.
  • China’s Producers’ Prices Index declined for a fourth straight month in October, according to statistics released on Saturday. Softer energy prices have largely attributed to manufacturing prices falling since July. Chinese factories are threatening to drag down prices around the world, which presents a fresh challenge to central banks worldwide as they look to revive record low levels of inflation.
  • Michael Bloomberg, the billionaire former mayor of New York City, is laying the groundwork to enter the U.S Democratic Party’s presidential race, months before voters in Iowa and New Hampshire kick off the fight to choose the 2020 nominee. Sources close to him have stated the former mayor has grown concerned that the Democratic candidates currently running are ‘not well positioned’ to defeat Donald Trump. His entry comes as previous favourite Joe Biden has begun to lose popularity to the more left fielding socialists such as Elizabeth Warren and Bernie Saunders. If he enters the race it, he will be the fourth contender in their 70’s.
  • The Bank of England held their interest rates steady last week at 0.75% however it also gave it clearest signal yet that it will be prepared to cut interest rates if the economy slows further, as it cut its growth forecasts to reflect a weaker global backdrop and the likely effects of Boris Johnson’s Brexit deal. The BoE still expects UK economic growth to pick up, from around 1% in Q4 this year, to 2.1% by the end of 2022. Mark Carney added that these projections are ‘assumed by the MPC’s latest projections; neither is assured’.
  • Japan’s Prime Minister Shinzo Abe has given orders for Japan’s first economic stimulus package since 2016 as his government worries over a global slowdown, the impact of higher consumption tax and a risk of a hangover from next year’s Tokyo Olympics. The exact figures are yet to be released by Japanese officials vowed to produce an ‘agile’ and ‘comprehensive’ stimulus package that will take advantage of ultra-low interest rates and borrow in order to finance public investment.

Looking ahead

  • Wednesday’s RBNZ meeting has traders in full debate mode. Majority of economist surveyed are sticking to their guns and are locking in a 25-basis point cut to 0.75%. While the market has been oscillating around this 50% cut figure mark, the Overnight Index Swap (OIS) implied probability of a cut sits at 64% as of Monday morning. With the meeting on Wednesday, NZDUSD has opened the week at its lowest level in nearly a month, with a strong USD performing well across the board on Friday night.
  • The UK Election is set for the 12th December and has been dubbed ‘Brexmas Elections’. The Conservatives are early favourites at the beginning of the campaign trail meanwhile the three anti-Brexit parties (Liberal Democrats, Greens and Plaid Cymru) have made a pact not to tread on each other’s toes and stand against one another in their individual stronghold areas in the hope that they can reduce the number of votes for Conservative and Labour which will ensure more anti-Brexit MP’s are selected. The SNP continue to focus on Scottish Independence.
  • All eyes were on last Wednesday’s U.S. ISM Non-Manufacturing Index print which came in stronger than expected (actual 54.7 versus expected 53.5). The timing of this piece of data perfectly fit the narrative of the Fed pause for the next FOMC meeting and helped market participants to seal their expectations that the Fed will stay put in December. There is still a descent economic growth in other sectors of the American economy. Therefore, it dissipates fears that the slowdown in manufacturing has expanded to the service sector.

Key market events this week

  • UK Gross Domestic Product YoY (Q3) – Monday
  • Eurozone ZEW Survey (Economic Sentiment) (Nov) – Tuesday
  • GBP Consumer Price Index Core YoY (Oct) – Wednesday
  • NZD RBNZ Official Cash Rate – Wednesday
  • US Consumer Price Index YoY (Oct) – Wednesday
  • AUD Unemployment Rate and Change (Oct) – Thursday
  • Eurozone Domestic Product YoY (Q3) – Thursday
  • JPY Gross Domestic Product Annualised QoQ (Q3) – Thursday
  • MXN Overnight Base Rate – Thursday
  • US Retail Sales Advance MoM (Oct) – Friday

  
 

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