USD: Trump and Liu to meet
As had widely been expected, U.S. President Donald Trump will meet with China’s chief trade negotiator this afternoon, bringing to a close this week’s round of trade talks between the two countries. Market expectations are that at some point, possibly even today, a fresh extension of the current terms of trade between the U.S. and China will be agreed to prevent the tariffs on Chinese goods entering the U.S. increasing by as much as 25%.
Given consensus expectations are for a resolution, or at the very least an extension for further talks, then the prospects for dollar downside are limited, whilst the lack of a resolution and a subsequent increase in trade taxes would see the dollar fly higher as investors seek a port in the storm.
Trump and Chinese Vice Premier Liu He are set to meet at 7.30pm GMT, with the fact that they are meeting face-to-face being seen as a positive in itself. The dollar is slightly weaker this morning across the board.
GBP: No change on the Brexit Express
Despite the announcement yesterday in the House of Commons that another round of Brexit votes will take place next week, the fact that they are not ‘meaningful’ and therefore on the plan itself, progress on the U.K.’s path out of the European Union has been stilted to say the least.
The problem for politicians remains that “everyone knows what to do, they just don’t know how to get elected after they do it”. Our expectation that this will go down to the last few days has not been moved by the formation of The Independent Group nor May’s meetings with Juncker this week.
Much like the trade negotiations between the U.S. and China, the overriding view is that an extension of talks between the two parties is the most likely option although we are going to have to go through another five weeks of this interminable back and forth that Brexit has become.
Sterling isn’t doing much at the moment and, absent any Brexit headlines that may be forthcoming, is unlikely to do so today.
NZD: RBNZ mulls cuts in response to buffer plans
Proposals in New Zealand to increase the amount of money that banks keep on hand as buffers against a potential downturn have sent the kiwi lower this morning. Higher capital requirements take money out of the economy that could previously have been lent to businesses or individuals, tightening the monetary conditions. The Reserve Bank of New Zealand have argued this morning that such a tightening of conditions may warrant a cut in interest rates.
Previously the RBNZ had tried to play down the impact of such an increase in bank reserves but that argument seems to have shifted of late and hence the sell-off in the NZD. There are only 9bps of cuts this year priced into the NZD, so further evidence that the RBNZ is looking for lower rates will see the NZD move a lot further than it has done overnight.
The NZD and the CAD are the only currencies in the G10 that are lower versus the USD this morning.