XE Morning Update - August 7, 2019

The NZDUSD opens lower at 0.6527 this morning.

It was a volatile day in the NZD yesterday.

Having been beaten lower Monday on increasing US-China trade war fears, the NZD rocketed higher after the release of surprisingly good NZ employment data. Employment grew at 0.8% in Q2 (0.5% forecast), while the unemployment rate plummeted to 3.9% (4.3% forecast) – the NZDUSD quickly rallied 60 points before drifting off and the NZDAUD surged through the 0.9700 level to 8-month highs.

The RBNZ Q3 Inflation Expectations numbers were released at 3pm. Both the 1 & 2-year inflation expectations fell when compared with Q2, which will be of concern to the central bank. The NZD fell across the board in response.

The Reserve Bank of Australia had a Cash Rate meeting Tuesday. They elected to hold their Cash Rate at a record low 1.00%.

The RBNZ is forecast to cut the Official Cash Rate (OCR) by 0.25% to 1.25% 2pm today in response to inflation and growth concerns. The rate cut is largely priced-in by the markets, so most focus will be on their forward guidance with respect to the pace and extent of further rate cuts.

The US-China trade frictions are creating a great deal of uncertainty in terms of global economic growth. Commodity currencies such as the NZD & AUD and equity markets have suffered consequently, and it increases the probability of more rate cuts by the US Federal Reserve.

China took steps yesterday to limit yuan weakness. This helped to provide some stability to the global financial markets overnight. However, a resolution to the US-China trade dispute is nowhere in sight – expected more market volatility.

Global equity markets, with the exception of the US, were lower on the day - Dow +1.0%, S&P 500 +1.2%, FTSE -0.7%, DAX -0.8%, CAC -0.1%, Nikkei -0.7%, Shanghai -1.6%.

Gold prices gained 0.4% to USD$1,471 an ounce. WTI Crude Oil prices plunged 1.6% to US$53.79 per barrel. Both commodities have been impacted by the intensifying US-China trade war – gold benefiting from safe-haven buying, while Oil falling on the potential negative impact on global growth.

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