XE Morning Update - June 6, 2019

NZDUSD 0.6616 0.1%
NZDEUR 0.5891 0.3%
NZDGBP 0.5214 0.2%
NZDJPY 71.72 0.3%
NZDAUD 0.9489 0.4%
NZDCAD 0.8878 0.2%
GBPNZD 1.9178 -0.2%

It has been a busy 24 hours, with the net result being the Kiwi relatively unchanged. It did get as high as 0.6666 though, so things are starting to get lively. It really highlights the value of having orders in place. The stage was set going into yesterday with the market starting to price in rate cuts out of the US that it hadn’t really given enough weight to. The RBNZ Assistant Governor then came out with a speech, which was unusually candid, basically saying they thought a 40 point cut would be all that’s needed. While this still leaves one more cut on the table, it makes that only 50/50 and implies they would not cut more than that. This led to direct NZD strength.

On top of this initial strength, Fed Reserve Chair Powell came out with Dovish comments which solidified the markets view of US rate cuts. There was also a horrible Jobs number, coming in at just 27k increase in people employed for the month. This compared to 185k jobs expected. To put this in perspective, this is not the most volatile data set, and the worst number since 2010.

Out of Europe, the EU has triggered disciplinary process against Italy over its debt levels. This is the start of a process which could potentially lead to a fine, so more a warning than a massive announcement, however we think Italy is going to be mentioned a lot going forward. In our view this was relatively inevitable. If you remember circa 6 months ago Italy was saying they could not meet the EUs debt to GDPs target, and there was a mini crisis of confidence. This was resolved by much back and forth, and then Italy basically agreeing to the targets, saying they would hit them as they forecast GDP to increase. The surprising thing here was everyone took them at their word, and crisis over. Now 6 months down the track, Italy apologises for missing the target, citing lower than forecast GDP. The reason this is all so important is that Italy is the 8th largest economy by GDP, just behind the UK, and if an Italian crisis spills into a European crisis with a backdrop of slowing global growth, you have quite the recipe for a recession.

Global equity markets were generally up- Dow +0.82%, S&P 500 +0.82%, FTSE +0.08%, DAX +0.08%, CAC +045%, Nikkei 1.8%, Shanghai -0.3%.

Gold prices rose 0.6% to $1,334 an ounce. WTI Crude Oil prices dropped a further 2% to US$51.74 per barrel.

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