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Collinson FX: January 27, 2020 - NZD rises against trend

by Collinson FX 27 Jan 02:51 GMT 27 January 2020
Ariki with her overlapping jib - 2020 Mahurangi Regatta - Mahurangi Cruising Club - January 25, 2020 © Richard Gladwell / Sail-World.com

Collinson FX: January 27, 2020 - NZD rises against trend

Risk sentiment is on the rise, as the Chinese 'Coronavirus' spreads across Asia and death rates climb. This drove the US Dollar higher as a safety play, bond yields lower and Gold higher. The EUR fell back to 1.1025, while the GBP slipped back below 1.3100, despite the Brexit legislation passing through Parliament and being signed off by the Queen. EU PMI data was softer, while Consumer Confidence contracted by 8.1%, adding to market woes.

The rising reserve hit the AUD, which fell back to 0.6825, while the NZD bucked the trend. The NZD rose, despite the rising US Dollar due to strong inflation data. NZ CPI rose to 1.9%, above expectations, hinting at stronger economic growth. The headline data supported the stronger currency, but the real impact is felt on the ground, with cost-of living pressures skyrocketing. Low interest rates have allowed consumer debt levels to rise to record levels, which is fast becoming a global issue, forestalling the inevitable?

The week ahead is chock full of global economic data releases, headlined by the FOMC meeting and the ensuing press conference. US GDP growth data will also draw a lot of attention and the Bank of England Rate decision ahead of 'Brexit', on the 31st of January. The spread of the 'Coronavirus' has the potential to become a 'Black Swan' event.

Collinson FX: January 24, 2020 - Asia flounders on virus news

Asian equities continue to flounder, dragging global markets lower, triggered by fears over the Chinese 'Coronavirus'. The virus has spread in Asia, with more than 600 cases and at least 17 deaths. The Chinese containment efforts will be watched closely and this will temper market confidence. The ECB left rates unchanged and QE in place. There were no surprises but the ECB head, LeGarde, did deliver a promise to review ECB policy and structure. The ECB have dragged interest rates into negative territory, while exploded liquidity to massive levels, never seen before levels. The process must be examined. The ECB have said low interest rates and the massive expansion of the Central Banks balance sheet, would stimulate growth, which would be measured in the CPI numbers. It has failed consistently and continuously. The definition of insanity is doing the same thing over and over again and expecting a different result!? The EUR drifted back to 1.1045, while the GBP held 1.3100, ahead of the confirmed Brexit day of 31 January.

Global equities markets drifted off record levels, awaiting developments of the Chinese 'Coronavirus', but sentiment remains high. Australian employment data was steady, with the headline rate falling to 5.1%, better than expected. This allowed the AUD to survive another day, holding 0.6835, while the NZD traded 0.6585. NZ CPI will reflect the growth in the local economy and inflation, which may have some influence on the currency. The benign inflation in the economy does not reflect the soaring cost-of-living, which the average citizen experiences, rather than the technical measure which denies the truth.

Look for developments in the Asian coronavirus for any possible market shakers, as there is little on the economic data front to drive major change to the economic narrative, until next week.

Collinson FX: January 23, 2020 - Virus fears subside in US

US equity markets charged back in to record territory, as fears over the 'Coronavirus' subsided and economic news took over the narrative. The Chinese Government confirmed 473 cases and 17 deaths, while the US CDC confirmed one case and said the disease posed little risk to America. US Existing Home Sales increased by 3.6% and President Trump presented a strong case of a booming economy in the US, at the Davos World economic forum. Trump impressed upon participants the need for deregulation as the driver of economic freedom and growth.

The Bank of Canada left rates unchanged, as CPI inflation data weakened, recognising downside risks and the option for further rate cuts at the next meeting. The UK had surprisingly strong Business Optimism numbers, released overnight, jumping from a contraction of minus 44 before the election, to plus 23 post-election. This was a massive reversal in fortunes and reflects the strong turnaround in confidence and sentiment, pushing the GBP up to 1.3120. President Trump confirmed negotiations for a trade agreement with the EU were under way, but suggested they were more difficult than the Chinese and threatened vehicular tariffs would be used, if an agreement was not made. The EUR slipped back to 1.1080 and is looking challenged.

Commodity currencies have been unsettled by the possible impact of the 'coronavirus' and drifted to the downside. The NZD fell back to 0.6580, while the AUD dropped to 0.6835, awaiting key employment data. The Australian employment numbers will likely impact the currency, as a litmus test for future RBA actions, while the extent of damage the bush fires have on the economy will not be fully released until their federal budget.

Collinson FX: January 22, 2020 - Virus crashes Asian Markets

Asian markets crashed in trade ahead of the Chinese Lunar New Year, alarmed by the outbreak of the 'Coronavirus' in China and the possible spread across Asia and the World. Chinese officials have confirmed 200 cases and recognised that it is contagious, while the US CDC confirmed a case has been detected. The Chinese New Year is a mass migration of hundreds of millions of Chinese people returning home, exasperating the risk of the virus spreading, hitting tourism, airlines, consumer and restaurant stocks. The Bank of Japan left rates unchanged, which are already negative, although upgraded growth forecasts. This did not satisfy local equity markets, which were caught up in the 'coronavirus' panic, with comparisons being made to the SARS outbreak in 2003.

The World Economic Forum in Davos is under way, but has been overshadowed by the news from Asia, although the IMF did kick it off with a slight downgrade of global growth forecasts. President Trump confirmed that the new front in the global trade wars was the EU and that they would be subjected to tariffs on vehicles, if a trade deal was not reached. This would be cataclysmic for the EU, meanwhile the UK is keen to agree to a Super-Trade deal with the US, giving them the inside running. The EUR traded 1.1090, while the GBP pushed back to 1.3050, with trade deals front and centre.

Commodity currencies were steady overnight, with the AUD trading 0.6850, while the NZD held 0.6600. These economies would be disrupted by the Chinese Coronavirus escalation globally and the impact of this, on their economies could be dramatic. It is early days and no need for panic.

Collinson FX: January 21, 2020 - Brits go on Trade hunt

Markets reached for further record highs, as US markets holidayed, celebrating Martin Luther King. World leaders gather in Davos for a global forum. It is another massive gathering of elites to prance the world stage and accomplish very little. Surprisingly the President of the USA will attend and his address will be worth the entry fee, alone!

He will cause controversy, but he will advertise the huge progress the US economy has made and highlight policies of low tax, deregulation and bi-lateral trade agreements. The AUD fell back to 0.6865, while the NZD attempted to hold 0.6600, in the face of a rising reserve.

The UK PM, Boris Johnson, held an African forum in Britain, which sets the table for economic and trade ties with African nations ahead of Brexit. The PM will use Davos to establish relations with priority countries, that the UK will target for trade agreements. High on the list is the USA and Commonwealth nations.

The GBP attempted to hold 1.3000, in the face of a strong Dollar, while the EUR slipped below 1.1100. The USD operates at a substantial premium and will therefore continue to dominate.

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