The AUD opens at 0.6968 and the NZD opens at 0.6616 this morning.
It has been a busy 24 hours, with the net result being the Aussie is slightly lower and the Kiwi is relatively unchanged. However, with the Aussie flirting with 0.7000 and the Kiwi getting as high as 0.6666, we are seeing things start to get lively which 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 big news then came out of New Zealand, with the RBNZ Assistant Governor giving an unusually candid speech, the gist being that the RBNZ think a 40 point cut will be all that’s needed. While this still leaves one more cut on the table, it makes that only a 50/50 possibility 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 27,000 increase in people employed for the month. This compared to 185,000 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 in the news moving 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 the italians at their word, and the 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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