US watchlist for FX manipulation widens

Summary:

  • The US adds five new countries to its watchlist (it includes possible currency manipulators)
  • New Zealand’s business confidence and activity improved in May
  • US dollar trades flat as Chinese equities do, US bond yields continue sliding

US watchlist widens

The US Treasury Department released its semiannual “Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States”. It decided to add five new countries (Ireland, Italy, Vietnam, Singapore and Malaysia) on its watchlist - these countries met some criteria in determining which one could be a currency manipulator (neither of them was named in this way though). The list also includes China, Japan, South Korea and Germany. In turn, India and Switzerland were removed.

The SP500 is trading below its important demand area which could mean more troubles for buyers. Source: xStation5

What’s next for kiwi?

The New Zealand dollar has been under pressure in recent days party due to increased trade tensions and concerns with regard to a possible global economic slowdown. In the meantime, the Reserve Bank of New Zealand cut interest rates on the back of inflation being stubbornly below the objective. This decision may have boosted business confidence in May as shown by the report overnight. Namely the ANZ indicator for activity outlook increased to 8.5 from 7.1, while the index for business confidence improved to -32 from -37.5. On top of that, the release showed a decline in inflation expectations to 1.81% from 2.04%, the lowest since the beginning of 2017. Quite weak details might be also found regarding employment as employers’ intentions to increase their staff in the construction sector fell sharply, reaching the lowest point since 2009. Overall, the data does not imply the latest RBNZ rate cut was a ‘one and done’ and pressure on the central bank should stay in play to keep monetary conditions loose or even loosen them yet more in the months to come.

Business confidence among New Zealand’s companies improved in May, it may not be a turnaround though. Source: Macrobond, XTB Research

The New Zealand dollar barely responded to the release and it is trading flat at the time of preparing this commentary. In addition to that, one may notice that the US dollar is being slightly offered this morning which may have something to do what we have seen in the US bond market in recent hours. Namely we observed a steady decline in US bond yields on Tuesday with the yield on 10Y bond falling to below 2.27% from 2.32%. This move was continued over Asian hours trading, the 10Y yield is moving at around 2.24% at the time of writing. A flight to safer assets was also mirrored by the performance of US indices - the Dow Jones lost 0.9%, the SP500 fell 0.8% and the NASDAQ went down 0.4%. On the other hand, the performance of Chinese indices does not look so ugly as they are trading even subtly above the flat line except the Japanese NIKKEI sliding 1.2%.

The NZDUSD is currently trading at an interesting place. The pair is moving nearby 0.6540 after breaking above the upper boundary of the bearish channel. Source: xStation5

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