Market Drivers November 7, 2018
Dems win House
Kiwi labor data beats big
Nikkei 0.28% Dax 0.89%
Europe and Asia:
NZD Labor 3.9% vs 4.5%
After a series of seesaw moves that saw wild swings in Asia session trade the dollar was markedly lower at London open as it became clear that Democrats would retake the House.
The final tally has yet to come in, but latest projections confirm that Democrats will have a majority in the House ending the open party rule in Washington DC and setting up the prospect of a deadlocked legislature for the next 2 years.
This was the consensus view before the election, but Asia session trade saw a burst of optimism in dollar trades when it looked like the Republicans may be able to hold both chambers of Congress. That sentiment faded as Republican seats were flipped, but the win for Democrats was bittersweet as they lost the hard-fought races in Florida and Texas.
Overall, the election results today were mixed with little clear impact on economic policy as Republicans widened their lead in the Senate and the Dems margin in the House was modest. Still, the Democrats have gained subpoena power and it is that shift that could be most damaging to the Trump administration as it will no longer be able to squash the myriad investigations into it past activities.
Ultimately, the combination of slowing US growth, higher interest rates driven by higher inflation and a newly empowered opposition could prove to be a toxic mix for the buck, but for now the markets are merely cautious in their assessment of the situation.
On the economic front there in no major data in North America, but in New Zealand, the much better than expected labor data boosted the kiwi. New Zealand unemployment rate fell to 3.9% from 4.5% eyed. The report was strong across the board but analysts continue to believe that it wouldn’t be enough to move the RBNZ to a more hawkish posture for now. Still, all eyes will be on the central bank as it meets later today and in the meantime, the better data and anti-dollar flows have pushed NZDUSD towards the .6800 figure for the first time in more than four months.