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Currency Market Analysis

Aug 19, 2019 | Currency Market Analysis

Global Themes

Three things to watch this week

Annual Jackson Hole symposium could be pivotal for FX markets

Every year the world’s central bankers gather at the Wyoming mountain resort of Jackson Hole to discuss monetary policy and share ideas. At the end of this week they will reconvene for the 2019 edition, against a backdrop of slippery stocks and surging bond markets. Last week the US 30 year treasury fell below 2%. Such high demand for low yield over a long period is a sign of how risk averse investors are becoming. The question is will central bankers look to use the Jackson Hole symposium as a platform to soothe markets?

There is certainly a precedent for this, when former Federal Reserve chair “Helicopter” Ben Bernanke announced plans for quantitative easing at Jackson Hole in the aftermath of the Global Financial Crisis. With chatter that the ECB might release another bazooka of stimulus at its upcoming September meeting, and amongst growing political pressure from President Trump on the Fed to lower rates, then there’s every chance we could see a shift from central bankers this time around. Focus will be firmly on Fed chair Jerome Powell whose depiction of their July rate cut as a “mid cycle adjustment” did little to soothe markets hungry for the beginning of a longer easing cycle. Should he stay resolute to that tone NZD/USD and NZD/JPY remain at risk of further losses, but should he shift towards further easing then we might just see a late week bounce in Kiwi pairs.

Local retail sales numbers due this week

RBNZ will be watching key barometer of consumer demand

Last Friday Reserve Bank Governor Adrian Orr was on the wires again, taking the opportunity to defend himself against a rather scathing attack on his policy by Kirk Hope, the chief executive of Business NZ. Hope suggested that talk of negative interest rates, increased government spending, plans to increase bank’s capital requirements with the RBNZ and August’s “surprising” 50 basis points cut were all sending a message of uncertainty to NZ businesses when neither inflation nor employment justified it. Orr retorted underlining their independence from the government, and claimed the RBNZ would not be setting policy on past data, but that they would “scan the horizon and chart for the journey. We look ahead - not behind”.

All that can make markets more sensitive to local data releases, given it definitely suggests that should the economy continue to weaken the RBNZ won’t hesitate to cut further. That brings into focus Friday’s June quarter retail sales numbers where an uptick of just 0.1% is forecast versus a previous growth of 0.7% in the March quarter. Should this print show contraction in the retail sector through Q2 then expect the knives to be out on Kiwi crosses, particularly NZD/AUD.

Global service sector data on the radar

Is the manufacturing slump spreading to the tertiary sector?

This week we also get a host of service sector purchasing managers’ indices (PMIs). In a nutshell they provide the most up to date indicator of service sector activity. If fears about a global recession are valid then we’d expect to see the contraction recently seen in global manufacturing (including NZ as seen last Friday) spread to the tertiary sector.

On Thursday we get monthly service sector PMIs from Australia, the Eurozone and the US. Should the numbers go below 50, signifying an activity contraction, then that can give stocks and bond markets another shake, but conversely prompt those central bankers at Jackson Hole into framing another coordinated round of stimulus. And that, ironically, might be just the shot in the arm NZD/USD has been waiting for.


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