On Friday the USD continued to lose ground, as it has done so far this year, with various USD indices down 0.2-0.3% for the day.
The Dow 20,000 level remained elusive, while the Nasdaq index rose to a fresh high. Banking stocks outperformed as investors were encouraged by the earnings results of the major banks that reported. The VIX index ended at 11.23, its lowest close for the year, supporting our risk appetite index at a risk-loving 77% level.
A number of US economic indicators were released, with the data showing higher than expected PPI inflation and long-term inflation expectations, consumer sentiment remaining close to a 13-year high, and retail sales showing better growth in December than November, driven by higher auto sales.
Despite US retail sales slightly disappointing consensus expectations, the market took the result as positive, with a recovery in the USD and higher US Treasury rates after the release, only to see some reversal after the consumer sentiment data were released. Liquidity conditions were thin and trading was choppy ahead of the long weekend in the US.
The softer USD track saw a range of currencies trade at, or close to, fresh highs for the year. The NZD gained 0.5% to close around 0.7130, with some soft NZ retail card spending data only causing a temporary dip in the NZD on Friday morning. Near-term we remain positive on the NZD. It closed last year at an oversold level. Our short term fair value model estimate has settled in a 0.72-0.74 range over the past 8-weeks, supported by higher risk appetite and robust commodity prices, and it wouldn’t take much for the NZD to head back into that range.
The AUD closed the week a touch above 0.75, a level it hasn’t closed at since mid-December. The slight underperformance versus the NZD saw the NZD/AUD cross close just above 0.95, a level that we think is fair, around the middle of the range we see it trading over coming months.
NZ PM Bill English made the news headlines following his meeting with UK PM May. English said that he sought an NZ-UK free-trade agreement as soon as possible after the UK left the EU. May said she will use her speech on the EU on Tuesday to set out her objectives for negotiations with the EU and for Britain’s international relationships after Brexit. The [UK] Times reported over the weekend that May will seek a “hard exit”, acknowledging a loss of access to the single EU market in a bid to regain control of immigration. GBP continued its recent soft run of late, barely keeping track of the soft USD on Friday, pushing NZD/GBP up to 0.5850.
In a published interview with the WSJ over the weekend, President-elect Trump said that on day one he wouldn’t label China a currency manipulator, as previously suggested. He would “talk to them first”. Presumably Trump’s advisors have told him that China doesn’t fit the US Treasury’s definition of a currency manipulator and over the past 18 months China has aggressively been trying to prevent a significant depreciation of the Yuan, burning off $1 trillion of foreign reserves in the process.
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In a published interview with the WSJ over the weekend, President-elect Trump said that on day one he wouldn’t label China a currency manipulator, as previously suggested. He would “talk to them first”. Presumably Trump’s advisors have told him that China doesn’t fit the US Treasury’s definition of a currency manipulator.
Yeah really?? Sounds like a statement from a reasonable man but we all know that Mr Trump is not a reasonable man.
Yes, the revelation. Sold the voters one thing, does the opposite. Most people call this lying. But a sociopath never sees it in themselves, sees it in everyone else. I also see that senior Republicans claim the TPP is not dead yet either. Reversals from campaign "promises" all over the place.
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