XE Morning Update

The NZD opens up at 0.6543

The Kiwi extended its good recent run yesterday, breaking out to 5 month highs against the USD. Adrian Orr, the RBNZ Governor released his financial stability report, which increases banks minimum capital requirements from the current minimum 10.5%, to 18% for the major banks. While this sounds like a big increase, the large banks currently average just over 14%. The market was expecting these rules to be implemented over a 5 year time frame, and was pleasantly surprised when Orr extended this to 7 years. The reason this is all relevant is that all else being equal, the higher the capital the banks need to hold, the lower the interest rates the RBNZ needs to set to get the same stimulus. This has basically already played out this year, but it helps to explain Orr’s dramatic earlier 50 basis point cut.

The AUD, while still generally having a good run of late, has failed to push higher in the near term due to poor data. Retail sales came in exactly flat, lower than the 0.3% expected. This was exacerbated by the trade balance coming in a few Billion less than expected. It is a monthly figure, and hence a little volatile, but if this drop becomes a trend, then the market will start to worry. In the meantime this can be a very strong signal the market wants to push higher- when it holds up pretty well on poor data.

Over to the UK the Pound is having a good run on positive optimism that Boris could get in with a majority, and therefore Brexit could get wrapped up “quickly”. Boris is promising that they would leave the EU by the end of January. After this a trade deal will need to be agreed, which he is saying he would not extend this deadline beyond the end of next year. This however, would not be the first promise about deadlines to be made. It really highlights that even if Boris wins a majority, and the UK leave in January, this saga is by no means near its conclusion.

Global equity markets are mixed, - Dow +0.03%, S&P 500 -0.05%, FTSE -0.70%, DAX -0.65%, CAC +0.03%, Nikkei +0.71%, Shanghai +0.74%

Gold prices are up 0.7% to $1,484 an ounce. WTI Crude Oil prices are flat trading at $58.37 a barrel.

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