New Zealand dollar slumps as Labour Party form coalition government, sterling falls versus euro, due to base interest rate rise uncertainty

Oct 20 • Morning Roll Call • 1324 Views • Comments Off on New Zealand dollar slumps as Labour Party form coalition government, sterling falls versus euro, due to base interest rate rise uncertainty

The key event in the FX markets on Thursday concerned the kiwi, New Zealand’s dollar. The Labour Party in New Zealand will now be in power with a coalition of partners and as a consequence the NZD slumped, losing over 1% versus many of its peers. Equities in the country also fell. As to whether this sell off is an overreaction remains to be seen, as there’s hardly any evidence to suggest that the new politically left wing government will be anti-business. Versus its main peers the kiwi experienced falls of (on average) 1.2%, after crashing through S3 versus USD, EUR, GBP and JPY, with NZD/CHF the fall was even greater, circa 1.8% down on the day.

The pound came under pressure on Thursday as the point of no return is being reached with the U.K., in terms of its Brexit bluffing. There is nowhere left to hide for the U.K. government, as the three critical issues of: E.U. residents’ rights, the Irish border and the final exit bill, need addressing, before a trade deal can be considered. The euro rose by over 1% versus the pound on the day, a similar pattern was repeated versus the majority of sterling peers, with the exception of the NZD, versus which GBP rose, as did all currencies. Sterling’s value also came under pressure due to U.K. retail sales falling from 5.6% YoY in September 2016, to 1.2% in September 2017, with this September registering a highly unusual -0.8% fall in sales. Investors still remain convinced that a December rate hike by the BoE is odds on (75%-80%), but doubt further rates can be justified in 2018, given the amount of poor hard data results being recently recorded.

The euro made gains versus the majority of its peers on Thursday, not necessarily as a consequence of Eurozone positive data, more in relation to other economic news being negative versus its peer countries. EUR/USD closed the day up circa 0.6%. Madrid’s government has denied the Catalonia referendum decision as legitimate, European equities consequently fell, in particular Spain’s IBEX index reacted badly, by selling off 0.74% on the day.

The USA is enjoying the lowest number of initial weekly jobless claims since the mid 1970’s, recorded at 222k for last week. Exactly the type of healthy economic data that will reinforce the FOMC’s intention to raise interest rates, when it meets in December for the final meeting of the year.

Other key fundamental news on the day concerned highly positive economic data delivered courtesy of China; GDP came in at 6.9% YTD and 6.8% YoY. Retail sales at 10.3% YoY and industrial production at 6.3% YoY, also beat the forecasts. Investors and traders should remain vigilant with regards to Japan’s general election which takes place on Sunday, current Prime Minister Abe and his party, are widely forecast to retain power.

STERLING

GBP/USD ended the day down circa at 1.3150, down 0.4 and breaching S1. GBP/CHF was down circa 1% on the day, breaching S3 and ending the sessions at 1.2837, GBP/AUD also slumped through S3, losing circa 1.1% on the day, to close out at approx. 1.6694. GPB/JPY fell through S1 on the day, losing circa 0.4% to 148.13.

EURO

EUR/USD pushed through R2 on the day closing the day out up circa 0.6% at 1.1847, whilst EUR/CHF initially fell to S1 early in the European session, but then recovered to end the day up approx 0.2% at 1.1566. EUR/JPY ended the day up circa 0.2% to 133.44, EUR/NZD finished the day up circa 1.8%, at 1.6873.

U.S.DOLLAR

USD/JPY ended the sessions down 0.2% at 112.53, USD/CHF sold off sharply in its usual negatively correlated performance compared to EUR/USD, ending the day down 0.5% at 0.9670. USD/CAD ended the day close to flat, resting on the daily pivot point line at 1.2476. NZD/USD fell by circa 1.6% on the day, crashing through S3, to end the day at circa 0.7014.

EQUITIES AND COMMODITIES SNAPSHOT FOR OCTOBER 19th.

• DJIA closed up 0.02%.
• SPX closed up 0.03%.
• EURO STOXX closed down 0.49%.
• FTSE 100 closed down 0.26%.
• DAX closed down 0.41%.
• CAC closed down 0.29%.
• IBEX closed down 0.74%.
• Gold ended the day up at $1290 per ounce.
• WTI oil fell by circa 1.2% at $51.63 per barrel.

KEY ECONOMIC CALENDAR EVENTS FOR OCTOBER 20th.

• GBP Public Sector Net Borrowing (Pounds) (SEP).

• GBP PSNB ex Banking Groups (SEP).

• CAD Consumer Price Index (YoY) (SEP).

• CAD Retail Sales (MoM) (AUG).

• USD Existing Home Sales (MoM) (SEP).

• USD Yellen Speaks on Monetary Policy Since The Financial Crisis.

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