Confidence Kills Kiwi

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Market Drivers August 30, 2018
NZ Business Confidence at a decade low
AU PCE Drops
Nikkei 0.09% Dax 0.27%
Oil $69/bbl
Gold $1202/oz.
Bitcoin $7000

Europe and Asia:
No Data

North America:
CAD GDP 8:30
USD PCE 8:30
USD Personal Spending 8:30

The majors spend Asia and early European trade in quiet consolidation, but both kiwi and Aussie tumbled badly after data from the region showed serious economic deterioration.

The kiwi fell hard dropping more than half a penny after business confidence reading sunk to a decade low. New Zealand business confidence printed at -50.3 from 44.9 the period prior. Investment outlook is now negative. New Zealand PM Ardern has set up a special council to help her advise on economic issues, but confidence issues may have little to do with organic demand and more with the global trade situation which has deteriorated this year. Adding to the problem has been the fact Global Dairy Auction prices declined 9 out of the past 12 times indicating secular downward price pressure on the country’s primary export. Still, current activity outlook gauge showed no decline whatsoever coming in at 3.9 versus 3.9 the period past.

The dour business outlook is sure to spur speculation that RBNZ may consider a rate cut before the year and such a move is sure to pressure NZDUSD below the .6500 level. For now the pair remains a relative weakness trade as trader sentiment will stay negative for the foreseeable future.

The Aussie also came under some pressure today with Private Capital Expenditure coming in at -2.5% versus 0.6% expected. Added together with lower building approvals it showed that activity in Australia remained challenging and Aussie also tumbled though not as much finding support at the .7275 level.

While the antipodeans suffered, the majors remained relatively bid with EURUSD trading back above 1.1700 level while cable continued to march higher, challenging the 1.3050 level in morning London dealing. Yesterday announcement by Barnier that EU was prepared to offer the UK a unique trade pact, calmed fears of a hard Brexit and flipped sentiment in the pait 180 degrees. Any further positive rhetoric out of Brussels and GBPUSD could bust through the 1.3100 figure as the day proceeds.

Meanwhile, on the deal front, the market’s focus will be on the ongoing trade talks between US and Canada which would solidify a new pact between all the North American neighbors. With Mexican deal done, the pressure is on to complete Canadian negotiations by Friday. All indication suggest that parties want to make a deal, but there is always risk of last minute issues. For now, the market is trading like a three-way deal will be completed with USDCAD hovering near the 1.2900 figure all night. Today’s CAD GDP data which could surprise to the upside could push the pair to the 1.2800 level, but price action will likely be contained until markets hear an update on the trade negotiations.

Boris Schlossberg
Managing Director

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