NZD bounces back as business confidence improves

Summary:

• NZ dollar leads the gains in the G10 basket following a rebound in business confidence

• Oil trims its last gains as Donald Trump resumes his attack on OPEC

• US White House national security adviser John Bolton criticizes an EU plan to circumvent US sanctions on Iran

Antipodean currencies are undoubtedly leading the gains in early European trading on Wednesday. The NZ dollar jumped following a rebound in business confidence in September showing an improvement to -38.3 from a 10-year low of -50.3 a month earlier. All in all, even as a number of enterprises expecting a deterioration of business conditions still prevailed, the September releases turned out to be the best one since May this year. On the other hand, the details do not look so encouragingly as the bounce was not broad-based. As evidenced by the chart below, the retail was the sole sector where a decrease of economic activity was expected. It could be a warning sign as it might morph into weaker growth in terms of retail sales being a notable drag on GDP growth as well.

NZ companies’ expectations as for future activity improved in September except the retail sector. Source: ANZ

Although the soft ANZ indicators surprised generally to the upside, one cannot say the same about the trade data for August. The deficit for the last month totalled -1484 million NZD falling short of the median estimate of -925 million NZD. Furthermore, the deterioration in the trade balance was driven mainly by a slump in exports as their value plunged to 4.05 billion NZD from 5.35 billion NZD while the consensus had pointed to 4.40 billion NZD. At the same time, imports grew 5.45 billion NZD making just a small decline compared to 5.49 billion NZD seen in July. Let’s notice that the last month deficit moved beyond the lower bound of the 5Y average of the seasonal pattern. Even as the trade data turned out to be quite gloomy, the improvement in business confidence prevailed pushing the NZ dollar ultimately higher. As of 6:52 am BST the kiwi is trading almost 0.3% higher against the greenback helping the AUD increase as well. By and large, we expect that Antipodean currencies (and riskier assets in general) might see a bounce in the weeks to come and the critical date might be midterm elections in the US at the beginning of November.

The NZDUSD smashed the bearish trend line several days ago and it has been able to swing above this line since then. Nevertheless, bulls need to move through 0.6700 so as to open the way for more gains. If so, the next resistance levels might be determined at 0.6800 followed by 0.7040 and 0.7190, albeit the last one might be hard to achieve. Source: xStation5

Oil prices have begun this week with solid gains which have been built up ever since. However, the beginning of Wednesday’s trading is bringing a slight corrective move as both grades are trading subtly lower this morning. The reversal in the ongoing bull market came on the heels of a Trump’s resumed attack on OPEC. During a speech at the United Nations, Donald Trump ratcheted up pressure on OPEC nations with a threat to demand payment for US military protection after they ignored his call last week to reduce prices. On top of that, Goldman Sachs poured cold water on widespread talks that oil could strike as high as $100 before long. The bank wrote “not so fast” adding that “another supply catalyst beyond Iran would likely be needed for prices to meaningfully break to the upside”. According to the investment bank other OPEC nations along with Russia could offset losses out of Iran.

Finally let us recall a speech of US White House national security adviser John Bolton who dismissed an EU plan to circumvent renewed US sanctions on Iran via setting up a special purpose vehicle. In his speech Bolton said that the United States would be “aggressive and unwavering” in enforcing economic sanctions on Iran which are expected to be enacted since November. He added that the US would not allow the EU or anyone else to undermine them. Let’s remind that the UK, China, France, Germany, Russia and Iran agreed on Monday to establish the special purpose vehicle to bypass sanctions by developing payment mechanisms to continue trade with Iran.

WTI prices are struggling just under $73 per barrel. Once they move through this level another target to eye will be $77. Source: xStation5

In the other news:

• API data reported a surprising build (+2.9 million barrels) in oil inventories

• Chinese equities surge with the Hang Seng (CHNComp) rising as much as 2.4%, the index in Shanghai gains 1.3%

• South Korean President Mood said that North Korea wants another summit with Donald Trump as soon as possible