Market movements have been small on a day with no economic releases and only a few snippets of news.
Commodity currencies got a boost last evening after there were signs of more thawing in US-China trade tensions but those gains have been unwound. China moved to reduce its import tariffs on cars from 25% to 15%, ironically a move that will benefit German and Japanese car manufacturers (and improve their trade balances) than US manufacturers. Meanwhile Trump is working on a proposal to reprieve Chinese telecommunications maker ZTE Corp, after it was forced to shut down when the US penalised the company for violating sanctions against Iran and North Korean.
The car tariff news saw the NZD climb up to as high as 0.6975 in early London trading but there has been a steady decline since, retreating to 0.6930, about the same level it was this time yesterday. AUD broke up through 0.76 but has largely followed the same path, seeing it settle around 0.7575 and now flat for the day. The news on car tariffs supported base metal and other commodity prices. Bloomberg’s commodity price index reached a 2½-year high and is up five days in a row. This positive dynamic is helping support commodity currencies against a backdrop of lower NZ-US and AU-US interest rate spreads. NZD/AUD is relatively flat around the 0.9150 mark.
In other news, some further doubt has emerged whether President Trump will meet North Korean leader Kim Jong-Un next month with Trump suggesting that there’s a “very substantial chance” it won’t work out. He added that “If it doesn’t happen, maybe it will happen later.”
Other currency movements have been small as well, with EUR, GBP and JPY relatively flat for the session. Italy’s President is exerting his power and is taking his time in considering whether to give the nod to the populist coalition government. Doubts have emerged whether the first proposed Prime Minister Conte will be endorsed. He’s an unknown academic law professor with little political experience and seen to be a puppet for the populist leaders. On a more negative note, a pro EU-exit economist Savona has been tipped as Italy’s Finance Minister.
The net result has been better price action in Italian bonds, with the 10-year rate down 5bps and the flow out of safe-haven German bunds seeing Germany’s 10-year rate up 4bps to 0.56%. As we saw yesterday, US rates have ignored these moves, with the 10-year Treasury rate tightly range-bound between 3.05-3.08%.
EUR was stronger after the China car tariff news, moving to as high as 1.1830, but this has since been unwound. A similar pattern was seen in GBP. Resident BoE dove Vlieghe shied away from his usual dovish comments in a reappointment hearing and was happy to outline a view of one or two rate hikes over the next three years, suggesting that he might have moved to the hawkish camp. This temporarily supported GBP but comments by Saunders and Carney gave the impression of being in no hurry to raise rates so the move wasn’t sustained.
The day ahead might prove to be a little more interesting but we’re not holding our breath. There’s not much to go on during local trading hours but tonight sees the first readings of PMIs across Europe and the US. UK CPI inflation is expected to show some further slight slippage. RBA Governor Lowe’s speech should be as neutral as ever, while FOMC meeting minutes tomorrow morning round out the session. There will be some focus on the additional language of inflation “symmetry”, but that horse has been well and truly flogged to death so we’d be surprised if there was much of a market reaction.
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