Daily Roundup – Markets review
The big news last night was the surprise dovish call from the Reserve Bank of New Zealand, which resulted in a close on cent and a half rally for the Aussie dollar against its Kiwi namesake. The market had already as good as priced in a rate cut by August, but the accompanying comments regarding slowing growth both at home and overseas, plus a shortfall in inflation, all served to compound downside pressures on the Kiwi dollar. The RBNZ appears to be digging in for a protracted slowdown.
The US dollar gained ground off the back of a narrowing of that yield curve inversion yesterday. This is just taking some pressure off calls for the Federal Reserve to jump in with a rate cut in a bid to stave off recession. The US economy remains relatively strong, but its going to be worth watching that spread between the two and five year treasuries as further divergence here will likely demand some action.
There was a little fresh Brexit optimism circulating yesterday after more support for Theresa May’s deal emerged. However this is limited in scope and would bring with it the threat of a general election needing to be held in the UK. As such, upside for the Pound has been limited. A series of indicative votes will be held later today in a fresh bid to find a way out of the Brexit mess but as these aren’t legally binding, it would seem more likely that the outcome here will at best simply serve to bolster uncertainty over Theresa May’s future.
The Euro has been under pressure, both from the stronger Dollar and also news that the ECB is planning some significant low-cost loans to banks in an attempt to keep the economy moving forward. Unless there’s some kind of capitulation from the Federal Reserve, fundamentals may therefore suggest that EUR/USD will remain under pressure in the near term.
EUR/CHF is indicating selling pressure. If a break below the 1.1200 level, which has provided support repeatedly over the last six months, can be achieved, then look for a move down to 1.1140, representing the 61.8% retracement of the 2018 run higher.