FX markets have been reasonably stable, with the Bloomberg DXY around 0.15% lower on the day; AUD is stronger on the day, helped by higher iron ore futures; NZD traded a very narrow range between 0.7318 and 0.7349

By Nick Smyth

FX moves have again been reasonably contained, with the NZD holding at around 0.7330.

US equities fell again today, with the S&P500 down around 0.4% (it remains ~3% up this year).  Besides the disappointing retail sales release, the threat of further trade measures continues to weigh on sentiment.  The White House confirmed overnight it wants to reduce the US trade deficit with China by $100b while Reuters reported yesterday that Trump was weighing up tariffs on up to $60b of Chinese imports.  A Chinese foreign ministry spokesman said “if the United States takes actions that harm China’s interests, China will have to take measures to firmly protect our legitimate rights.” 

Meanwhile, US media report that Trump is set to appoint Larry Kudlow to replace Gary Cohn as the chair of the National Economic Council.  Earlier this month Kudlow described the proposed US tariffs as “a regressive tax on low-income families” although Trump believes Kudlow has since changed his mind and is now supportive of his trade policy.  The market will hope Kudlow provides a moderating voice within an administration increasingly comprised of economic nationalists. 

FX markets have been reasonably stable, with the Bloomberg DXY around 0.15% lower on the day.  ECB President Draghi spoke overnight, sounding more confident that inflation will rise to target in the medium term, but given low underlying inflation at the moment he reiterated the ECB should be “patient, persistent and prudent“.   Draghi noted that the recent rise in the EUR had been driven more by “exogenous factors….which might weigh on inflation down the line as it does not fully arise from stronger euro area fundamentals. So this is a development we need to monitor closely.” If the EUR continues to strengthen (the USD resumes its downtrend), this will probably push back the ECB’s timeline for raising rates.  The EUR fell slightly on the day and is now back below 1.24. 

The AUD is stronger on the day, helped by higher iron ore futures (China steel curbs are set to be eased following the end of winter) and broader strength in hard commodities.   NZD/AUD remains range-bound. 

The NZD traded a very narrow range overnight, between 0.7318 and 0.7349.  Yesterday’s NZ data had no impact on the NZD, although the REINZ data showed a continued recovery in the NZ housing market post the election last year.  NZ GDP is released today, and we expect a 0.7% increase in Q4, slightly below the consensus for 0.8%.  

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