XE Morning Update - July 19, 2019

NZDUSD 0.6785 0.7%
NZDEUR 0.6016 0.2%
NZDGBP 0.5406 -0.2%
NZDJPY 72.76 -0.1%
NZDAUD 0.959 -0.1%
NZDCAD 0.8843 0.6%
GBPNZD 1.8495 0.2%

The USD weakness has pushed NZD and AUD higher overnight on the back of New York Fed President John Williams’ speech that saw more assurance of a possible US rate cut at the next FOMC meeting on 31 July.
He stated that it is “better to take preventative measures on rates than to wait for disaster to unfold” while also expressing concern that there might be a structural matter leading to declining inflation expectations there. Both NZD and AUD reached near 3 month high.

This comes a week after Fed Chairman Jerome Powell’s testimony to Congress that hinted at a rate cut. Therefore Williams’ comment this morning has been seen as ‘cementing’ the dovish stance of the US monetary policy currently. Market’s increasingly pricing in 50 bps cut.

Australia released its employment data yesterday that saw reasonably strong numbers dampening expectation of RBA interest rate cut. While the unemployment rate remained unchanged at 5.2%, there was a sharp decline in part time jobs and full time jobs number climbed up to 21,000. This figure helped AUD shoot higher.

Along with the US interest rate expectations and AUS employment data, a few factors added to the risk currencies rally such as rising commodity prices (gold, iron ore), positive Chinese data. Chinese GDP recorded 6.20% earlier in the week and is considered relatively a good number amid months-long trade war against the US counterpart and fresh new threat by US President Trump who said that there would be more tariffs on US$ 325 billion worth of Chinese imports. Positive Global Dairy Auction result this week also helped the NZD upward movement although this was the first auction in a positive territory in last 5 auctions so markets will need to see more of future results to confirm the positive impact of the dairy on NZD.

Over in Europe, the ECB’s Governing Council will meet next Thursday. The Euro zone inflation data for last month came out at 1.3% which was higher than expected but still remains well below the ECB target of 2%. General expectation after this is that the ECB will consider a further rate cut and bring back Quantitative easing. Some of the external risks they have identified to support their view are Brexit, US-China Trade war, Iran and potential US tariffs on European car imports.

US Unemployment claims rose to 216K snice last week while the previous week’s number was revised down from 209K to 208K.

US Philly Fed Manufacturing index rises over 21 points – the highest level since July 2018.

There will be more Fed members speaking overnight tonight and markets will see if they will share the similar view with Williams this morning.

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