RBNZ decision and financial releases in focus

As the current rattled the markets, we move on to check out what next week has in store for us. Politics are to remain in the agenda, especially the UK elections and the US-Sino relationships and at the same the markets shift towards RBNZ’s interest rate decision. Also focus will be shed on Fed Chair Powell’s testimony in the US monetary front. Nevertheless, a plethora of financial releases is due out next week, which could provide direction for various currencies. Let’s get a closer look…

USD – US-Sino and Powell’s speech to keep traders busy

The US-Sino trade relationships kept the markets busy in the past week, as the issue tested the market’s nerves a couple of times. The main issue that seems to remain is when a possible interim agreement may be signed. Yesterday media stated that China and the US agreed to roll back tariffs on each other’s products, as part of a partial deal. According to media the roll back is to be made in phases and should the reports be verified, we could see market sentiment getting a further boost. Practically such an agreement would remove a major obstacle to actually striking a partial deal and even preparing the ground for a final deal. However we continue to maintain our worries, as media also mentioned that there may be stiff internal US opposition to the possible tariff roll back announced. Balances of the negotiations continue to be fragile and further developments could create high volatility for the USD. In the monetary front, a number of Fed officials are to speak next week, yet we tend to single out the testimony of Fed Chair Powell, before the Congressional Joint Committee on Wednesday during the American session. We would not be surprised to hear the Fed Chair reiterating that the US economy is in a good place and could imply that the Fed is to pause its easing cycle. Never the less, deviations are quite possible, and the event could create substantial volatility for the greenback. As for financial releases, there is quite a number of them due out from the US next week, yet we tend to concentrate on the release of the CPI rates for October on Wednesday, the PPI rates for October on Thursday, and on Friday the retail sales growth rates as well as the industrial output growth rate, both for October.

GBP – Elections and financial data eyed

By asking for elections, UK’s PM may have bitten more than he can chew. Recent polls show the conservatives being well ahead with 38%, yet at the same time, soft Brexit/ pro remain parties combined seem to be getting a 52% majority. Should such majorities be realised in the UK Parliament, it may prove difficult for Johnson to actually pass his deal. To make things even more confusing, the opposition parties remain deeply fragmented, with Liberals categorically refusing to support Labour’s leader Corbyn to power. While the conservatives may have reached their upside limits, according to some political analysts. The pound remained rather unimpressed on the news, however should there be further, deeper political uncertainty it could have an ultimately bearish effect on the pound. BoE’s interest rate decision was clearly bearish for the sterling on the other hand. The bank maintained rates unchanged at +0.75%, yet a dovish tone seemed to exist in the accompanying statement. The bank lifted the certainty behind its previous decisions regarding “gradual and to limited extent” hikes in case of a smooth Brexit and at the same time lowered the inflation and growth outlook for the UK economy. Also, two descendants (Saunders and Haskell) were in favour of a rate cut, surprising the market’s which expected all MPC members to vote in favour of the bank maintaining the 0.75% level. Next week a number of financial releases are due out for UK’s economy. Starting early in the week, on Monday, UK’s preliminary GDP growth rate for Q3 is to be released along with the Manufacturing output growth rate for September. On Tuesday, we get UK’s employment data also for September, while on Wednesday UK inflation rates for October both possibly shaking the pound. One of the last major financial releases for the UK is expected to be October’s retail sales growth rates on Thursday.

JPY – Safe haven flows and financial releases in focus

JPY was substantially influenced by safe haven flows in the past week and this trend may follow into the coming week. We expect the US-Sino relationships and any developments on the issue to have a significant affect on the Japanese currency, once again. Any indications of improvement could boost market confidence, hence weakening the Yen and vice versa. After BoJ governor Kuroda’s dovish statements early on Thursday, we expect the dovish tone to continue to dominate statements made by BoJ officials. However, on the early Monday morning, analysts could be scrutinizing the summary of opinions for BoJ’s latest meeting at the end of October. The aim of their quest could be to find further clues on what makes the bank tick especially after the dovish tweak in the latest interest rate decision, which made a number of analysts stating that the bank may be paving the way for further easing. As for financial releases, we tend to focus on the preliminary release of Japan’s GDP growth rate for Q3 on Thursday and a possible slowdown could weaken the JPY. Before that though, on Monday, we get Japan’s current account balance as well as the core machinery orders growth rate, both for September. Finally, on Wednesday we get Japan’s PPI rate for October.

AUD – Employment data out on Thursday

During the past week, the Aussie had a good run as it remained supported. On the monetary front, RBA’s interest rate decision was to remain on hold, yet the accompanying statement was interpreted as tilted to the hawkish side. Also a boost on market sentiment fueled by hopes about the possible signing of a partial US-Sino trade deal, maintained the positiveness for the AUD. This week is expected to start early for Aussie traders as the release of China’s inflationery measures for October on Saturday, could make their release felt on Monday’s opening. From China we also get the Industrial production growth rate for October on Thursday, which could be of great interest for the Australian economy and especially for Australian exporters of raw materials to China. However, we tend to view the release of Australia’s employment data, as probably the main release for the Aussie next week. We start on Wednesday with the release of the wage price index for Q3 and continue on Thursday, with the the employment change figure and the unemployment rate for October. Should the data crack the picture of a tight Australian labor market, we could see the Aussie weakening. On second base we would like to note the release of the more forward looking Consumer Sentiment for November.

EUR – Preliminary GDP rates to move the single currency

EUR traders are to be quite busy next week as a number of financial releases are to decide the direction of the common currency. Starting on Tuesday with the release of Germany’s ZEW economic sentiment indicator for November. Also, EUR traders are expected to draw their attention to Thursday when Germany’s preliminary GDP rate for Q3 is due out. Should the growth rate remain in the negatives, Eurozone’s largest economy could start entering a recession with all the possible adverse effects on the common currency. However, Eurozone’s preliminary GDP growth rate for Q3, may be the one determining the actual effects on the EUR on Thursday. Please note that on Wednesday, we get Germany’s final HICP rate for October as well as Eurozone’s industrial production growth rate for September. Last but not least, on Friday we get Eurozone’s final CPI rate for October as well as the trading club’s trade balance for September. On the political front the elections in Spain may be interesting politically, yet may have little effect on the markets. At the same time, we would like to note that the statements made by former EU Commission President Juncker, as reported by German media, show he does not think that US president Trump will implement auto tariffs. The comments provided some hope, yet the issues remains quite uncertain. On the monetary front the common currency, got some forecasts from the ECB, which seemed to be less pessimistic. The bank seems to expect a moderate yet positive growth for the second half of 2019. On the flip side though, on Thursday the European Commission warned that the worst may not be over, and that the EU economy is facing a combination of shocks.

NZD – RBNZ’s interest rate decision: to cut or not to cut?

During the Asian session on Wednesday, we get RBNZ’s interest rate decision. The bank is expected to cut rates by 25 basis points, lowering them from current +1.00% to +0.75%. Currently NZD OIS imply a probability of 64.34% for the bank to proceed with the prementioned cut, and the other 35.66% favouring the bank remaining on hold. It should be noted that some uncertainty seems to persist. The recent weak (if not unfavourable) employment data for Q3, released on Tuesday, could be tilting the bank’s decision towards cutting rates. Also the inflation rate is below the bank’s median target of +2.00%, and had actually retreated in Q3 to +1.5% yoy (Q2:+1.7% yoy). Business confidence, albeit improving, seems to remain pessimistic and global trade uncertainty could be playing also a dovish role here. For all the prementioned reasons, we tend to maintain as a main scenario, that the bank may proceed with the prementioned cut. Also bear in mind that RBNZ in the past year, seemed to display a higher degree of decisiveness, to face issues head on. However it could be the case that the bank may retain a wait and see position, especially after the recent progress in the US-Sino trade relationships. In such a scenario, we could see the bank maintaining its rates unchanged at +1.00%, which could provide substantial support for the NZD. Another scenario which was not mentioned but could also play out and provide some support for the NZD would be a hawkish cut. In such a case the bank would cut rates, yet the market may perceive the cut as the end or a pausing of the bank’s easing cycle, removing or lowering expectations for further cuts.

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