HiFX morning Update, October 5 2018

NZDUSD 0.6476 -0.8%
NZDEUR 0.5629 -0.7%
NZDGBP 0.4975 -1.1%
NZDJPY 73.70 -1.3%
NZDAUD 0.9160 -0.2%
NZDCAD 0.8237 -1.8%
GBPNZD 2.0097 1.1%

The NZD opens at 0.6476

More pain for the Kiwi today, down across the majors.

US 10 year Yields have popped up, trading at 3.19%. Off a touch, but the highest levels since 2011. With respect to the neutral rate, the Fed’s Powell came out earlier in the week saying “We may go past neutral, but we’re a long way from neutral at this point”. This is creating somewhat of a perfect storm, and when you add in the very strong US local data we have had recently, it is no surprise the NZD is breaking to the downside. The 2015 lows of circa 0.6200 are looking like the next medium term target.

The EUR has found a bit more strength, with Italy saying they are committing to a lower deficit of 2% of GDP by 2021. Why the market took this without even the hint of a grain of salt surprises us, as Italy has been known to miss targets before. Either way, for now the EUR likes it.

The Pound is also having a good day, with the UK preparing to make a new proposal on the Irish border that “Makes finding a compromise possible”. From a longer term perspective, the US is really making everyone really focus on yields, and interest rate differentials globally. If Brexit wasn’t round the corner, the UK would be very close to raising rates, if they hadn’t already. The ECB is also getting close. This comes in stark contrast to both the NZD and AUD, who are both expected to be on hold till at least late 2019/2020. If we get a relatively benign Brexit, then this is going to be a major theme and focus for next year.

We have AU Retail sales at 2:30 pm, with heavy overnight US data, Non-Farm Employment change and the Unemployment Rate. Given the recent strong data, don’t be surprised of expectations for the data to beat expectations.

Equity markets (excluding China) are down across the board, - Dow -1.26%, S&P 500 -1.32%, FTSE -1.22%, DAX -0.35%, CAC -1.47%, Nikkei -0.56%, Shanghai +1.06%

Gold prices are basically flat at trading at $1,201 an ounce. WTI Crude Oil prices have come off, down 1.9% trading at $74.42 a barrel.

ends

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