The New Zealand had some vital data to its economy this past week after a 7.8 magnitude earthquake hit the country on the 14th of November. We didn’t really see much market reaction to this after that. It was noted by New Zealand’s finance minister, Bill English, that the earthquake could dent growth this quarter and the first quarter of 2017. The Kiwi has been steadily appreciating over its crosses as economic data remains supportive. The weakness we saw against the U.S dollar was due to the effect of a strong greenback. It still remains susceptible to further weakness against the USD as the Fed Watch Tool markets are currently pricing in a 95.4% chance of a rate hike.
Global Dairy Trade
Dairy prices continued to rise at this week’s Global Dairy Trade auction. Overall prices were up 4.5% with prices higher for all dairy products. The key determinant of Fonterra’s farm gate milk price, whole milk powder, rose further to its highest level since mid-2014 to $3423/tonne. A 3.2% increase in price. High prices are not only a result of a tighter supply, but a firmer demand too. Again at this week’s auction there was a strong buying interest from china. Volumes sold at this past week’s auction were down by 14% from the auction a fortnight before. Supply has continued to decline due to wet weather and this is expected to continue over the next two month. Even with rising prices, which I think it makes sense for farmers to be looking for ways to increase their production, a worse than Fonterra’s predicted 7% decline is eyed over a couple of months.
As I stated in my forecast, that I expect a higher than expected number on both the Quarter-over-Quarter and Year-over-Year retail sales. A 0.9% increase was seen during the third quarter, though with a 0.9% decline from last year’s third quarter as this year’s came in at 5.1%. Strength in spending is steadily increasing and expected to be sustained this quarter. Low inflation is one of the main reasons why we seeing a surge in consumer spending. This allows household incomes to stretch a little bit further.
The Japanese Yen remained weak this week against the kiwi. We didn’t have much vital economic data coming from japan this week. Japanese Yen look to the Bank of Japan to guide near-term moves in the Yen, and this is especially true as the recent global bond market sell-off has pushed Japanese Government Bond yields to the BoJ’s stated ceilings. In September BoJ Governor Haruhiko Kuroda and his staff announced the bank would purchase unlimited amounts of JGB’s in order to control rates.
According to the Commitment of Traders report that still dates back to the 15th of November, the net noncommercial position was above the waterline, just above zero. This shows a bearish sentiment. I expect the net noncommercial positions to be way above the waterline as we saw some more bearishness with the pair this past week. A decrease in both short and long noncommercial as price closed off low. This week’s economic data from New Zealand didn’t really strengthen the kiwi against a strong greenback.
The Australian dollar got hammered this week after a disappointing labor market data. The country’s economy only added 9.8k jobs, far less than the 16k that was projected by economists. Furthermore, September’s net job loss was revised to a whopping 29k from the initially reported 9.8k drawdown. The currency fell alongside front-end bond yields, suggesting the results nudged the priced-in RBA outlook toward the dovish side along of the policy spectrum.
With the U.K budget statement due on the 23rd of November, this past week’s economic data helped prop up the pound against most of its peers. The Bank of England’s (BoE) expectation as the marked depreciation in the exchange rate is expected to fuel ‘inflation overshoot, and HM Treasury may be unable to deliver a material fiscal stimulus package amid the growing budget deficit.
The kiwi has been performing relatively well against the Euro. Strength both currencies saw strength this past week and that resulted in week-long range. The markets continue to price in no ECB rate cut this year, with a 0% chance of a rate hike next month. If ECB President, Draghi, does offer insight into the ECB’s next steps, we will be focused on hearing what they intend to do with their capital key and deposit threshold requirements.