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NZD, AUD, GBP underperform. Early UK election called, but Boris needs a 2/3rds majority to push through. Rates drift lower

Currencies
NZD, AUD, GBP underperform. Early UK election called, but Boris needs a 2/3rds majority to push through. Rates drift lower

There has been plenty of newsflow overnight. The net result has been a broadly stronger USD, alongside JPY, suggesting a risk-off tone, with NZD and AUD underperforming, alongside a soft GBP. US equities are flat while global rates are down slightly.

GBP has been the weakest of the majors overnight, down 0.6% to 1.2845. Boris Johnson called for a 12 December general election which will be put to vote in Parliament on Monday, where he needs a two-thirds majority to push through. Being well behind in the polls, there is doubt that Labour will agree – the party will only back an election once a no-deal Brexit is completely ruled out. Johnson argued that if an election is agreed then the government will make available all possible time for the Withdrawal Agreement Bill to be discussed and voted through.

The ECB left policy settings and guidance unchanged, as expected, in what was President Draghi’s last meeting. The economic message was downbeat with risks to the outlook weighed to the downside and with muted measures of underlying inflation. Incoming President and ex IMF head Christine Lagarde takes over, and will inherit a divided Governing Council with at least a third who were against the €20bn per month QE restart that begins next month.

Euro-area PMI data were a touch softer than market expectations, with no question that Germany is on the verge of economic recession and the rest of the euro area very sluggish. The US manufacturing PMI was stronger than expected and this will see the consensus pick a recovery in the more widely followed ISM index when released early next month. Core durable goods orders were soft, as expected, with business investment weighed down by the trade war. New home sales dipped but rising mortgage applications put to the upward trend continuing.

After being beaten down over the first half of the month, the USD has found a floor this week and is up 0.2% on the key dollar indices.  EUR is down 0.2%, holding in around the 1.11 mark, with not too much damage done by the soft PMI data and with muted reaction to the ECB meeting.

The NZD has been the worst performer since this time yesterday, slipping a little during local trading hours and falling further overnight to 0.6380, down 0.7% and taking it back to the bottom of this week’s (narrow) range. There hasn’t been any obvious news to trigger this, other than a slight risk-off tone feel to markets. The AUD has also been under a little pressure and is down 0.5% to 0.6820.

Vice President Pence delivered a speech focused on China, with the FT reporting it as chiding China for becoming “even more aggressive and destabilising” over the past year and including a number of attacks – including slashing the “rights and liberties” in Hong Kong and theft of US intellectual property. But the speech also contained some conciliatory language, insisting that Washington was not seeking confrontation with Beijing or a decoupling of the world’s two largest economies. The speech probably wasn’t aggressive enough to derail trade talks but obviously won’t be helpful either in that regard and we await China’s response.

The slight risk-off backdrop sees JPY as the strongest of the majors and NZD/JPY down 0.8% to 69.2.  US Treasury yields are down 1-2bps across the curve that sees the 10-year rate at 1.75%. The NZ rates markets saw some follow-through from the previous day’s decent rally, taking the swaps curve down 2-3bps, with the 2-year rate closing at 0.95% and the 10-year rate at 1.37%.

Tonight sees the release of Germany’s IFO survey, which is expected to remain downbeat, while the final reading of the US consumer sentiment index is seen to be little changed from the preliminary reading.

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Source: CoinDesk

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6 Comments

Is this not exactly what the Reserve Bank wants , a lower Kiwi Dollar , it could stimulate exports , and stimulate some inflation ( who would have thought anyone would ever want more inflation 10 years ago ? )

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Great for those of us who get direct export receipts. Bad for the rest of us trying to maintain our standards of living while other costs rise. Or eat food that relies on freight as part of a supply chain. You get the idea.

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Then many people spend less because they have effectively less disposable income...and the RBNZ gets irritated all over again that people aren't spending.

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I've never liked the term disposable income. Implies that any extra unspent income should be thrown away without much consideration

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Exactly, everone wants their currency to be lower.

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Unless your the USA. Being able to print dollars without affecting its value drastically is a very valuable advantage

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