XE Morning Update - August 16, 2019

The Kiwi opens at 0.6445

The Kiwi continues to consolidate, with the market starting to look towards the Fed’s decision next month. Taking a leaf out of the RBNZ, the market is now pricing in a 42% chance of a 50 basis point cut out of the Fed, with a least 25 basis points all but confirmed. There is even talk of 75 points not being beyond the realm of possibility. Still a lot of water to go under the bridge before we get to the meeting, but it is looking like a live one.

Out of Europe, in something that has lead the EUR to be the worst performer, the ECB’s Rein has come out saying it Is better to overshoot on stimulus than undershoot. This really seems to be the prevailing view amongst central bankers, but it is something I would question. They are all of the view that it is fine if inflation is higher than target, as they can just raise rates to quell it. I would argue this is not so easy in a recession, with unemployment at 10% and inflation at 10%, raising rates to stop that is going to cause a lot of pain. For now though, memories are short, and “this time is different”.

US and European Equity markets are mixed- Dow 0.47%, S&P 500 +0.28%, FTSE -1.13%, DAX -0.70%, CAC -0.27%, Nikkei -1.21%, Shanghai +0.25%.

Gold prices are higher, up 0.9% trading at $1,532 an ounce. WTI Crude Oil prices are off, down 0.8% trading at $54.64 a barrel.

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