Trump puts spotlight on China
By Peter Rosenstreich
As President Trump travels to China, the report came out that China’s trade surplus with the US dropped to US$26.2 billion in October from $28.08 billion in September. Rising imports are good for regional commodity exporters and they indicate that domestic demand is rising due to rebalancing away from capital investment. One exception is iron ore imports, which buckled as China made efforts to halt pollution through a crackdown on steel producers.
China’s weaker exports suggests slowing global growth. With rising geopolitical risk and evidence of a broad economic slowdown, emerging market currencies are exposed, especially against the US$’s rising yield curve. USD/CNY and the China-US 10-year yields correlation has disconnected, indicating that at least in the short run, CNY will be less exposed to higher US rates. Tomorrow China’s CPI inflation report should show an annual rise to 1.8%, as food prices are climbing above trend. This might spark the central bank to tighten money supplies.
NZ interest rate to stay put
By Arnaud Masset
The Reserve Bank of New Zealand (RBNZ) is expected today not to change its Official Cash Rate of 1.75%. Despite the Kiwi’s sharp depreciation since end-July and an inflation upside-surprise in Q3, the central bank will refrain from hawkishness. The RBNZ will reiterate its call for a weaker New Zealand dollar. After falling 0.65% yesterday, NZD/USD was up 0.20% to 0.6915 this morning. On the technical side, the pair couldn’t validate a break of the 0.6860 support area and bottomed at 0.6718 on 27 October. In the absence of positive news from the US to boost the greenback, a retracement of the NZD/USD is more than likely.
All week, G10 currencies have been range bound, with a dearth of news collapsing volatility. The Currency Volatility Index eased to 6.87%, its lowest level since September 2014. The 3-month implied volatility in EUR/USD fell to 4.14%, while the one on USD/JPY eased to 7.92%.