Dollar Rate, Kiwi, Brexit
I like to start my first blog post of a new week with a quick round-up of what is likely to dominate the market when it opens a few hours from now. There are really three important things going on now.
First and perhaps most importantly, the market consensus that we will see further hikes in the U.S. Dollar next month and over 2019 is coming under question. President Trump has made it clear that he thinks rate hikes are dangerous for the economy and while the Federal Reserve is independent, there are signs that this thinking is spreading and having an impact, with FOMC member Harker stating Friday that he is “not convinced” there should be a December hike, although that has been his position for a while. This means that the forward rate for the USD is coming under threat and may now stop the greenback moving significantly higher. The long-term trend in the U.S. Dollar is still bullish, but its continuance becomes more doubtful.
Secondly, the New Zealand and Australian Dollar are on a tear and have risen strongly over recent days. They are the only currencies that are making new multi-week highs against the greenback, and if the U.S. Dollar trend does falter, they will be well-positioned to advance further. The strength is plausibly attributed to recent data releases which have shown stronger than expected economic fundamentals in both New Zealand and in Australia, and because the interest rates of these two currencies are comparatively high.
Finally, the Brexit sage continues, but there have been no substantial changes following my piece last Thursday to report yet. The only thing worth adding at this point is that it may be significant that the 47 nominations to call a no confidence vote in the Prime Minister’s leadership of the governing Conservative Party has still not yet been reached. Some pro-Brexit MPs seem to be showing a willingness to work with May on the deal, which probably improves the chance that Parliament will approve the deal. Despite this, it still looks as if Parliament will reject the deal and will then face a choice between betraying Britain’s 2016 plebiscite and remaining or re-running the vote, or to sit tight and allow a “no deal” Brexit to happen on 29th March 2019.