Tariff Tides and Central Bank Turns
What to buy, what to sell...
Monday, December 29, 2024 (Week 01)
This report offers Forex traders insights into major currencies' fundamental strength as we move into 2025. The US Dollar and Swiss Franc remain "Very Strong" and "Strong", respectively; the Yen is "Strong"; the Euro and Pound are "Moderately Weak"; the Canadian Dollar is "Weak"; and the Australian and New Zealand Dollars are "Very Weak". Last week, markets reacted to the Fed's hawkish 2025 outlook and Governor Ueda's lack of clear guidance on future rate hikes. Next week's focus will be on US-China trade and key economic data releases.
USD - VERY STRONG: The US economy is proving resilient, with a strong labour market and robust consumer spending. The Fed's hawkish stance, despite the recent rate cut, signals confidence in the economy's ability to withstand higher rates. However, the potential for increased trade tensions with China under the incoming Trump administration has introduced some uncertainty.
CHF - STRONG: The Swiss Franc retains its safe-haven appeal, attracting inflows amid global economic and political uncertainties. Despite the SNB's recent 50bps rate cut, the Franc remains supported by Switzerland's political neutrality and strong economic fundamentals.
JPY - STRONG: The Yen remains strong, supported by expectations of a potential policy shift by the Bank of Japan. While the BOJ maintained its current policy stance in December, the market is increasingly pricing in a move away from ultra-loose monetary policy in 2025. The recent uptick in inflation and a relatively resilient labour market provide further support for the Yen.
EUR - MODERATELY WEAK: The Euro area continues to face headwinds from slowing economic growth, political uncertainty in France and Germany, and the ECB's dovish stance. The recent rate cut by the ECB has further weakened the Euro, although expectations of additional easing are already priced in.
GBP - MODERATELY WEAK: The Pound remains under pressure due to concerns about the UK's economic growth prospects and uncertainty surrounding the Bank of England's future monetary policy path. Mixed economic data and the new Labour government's policies add to the complexity.
CAD - WEAK: The Canadian Dollar is weighed down by a combination of factors, including a slowing economy, a dovish central bank, and uncertainty surrounding future US trade policies. The recent decline in oil prices has also added to the currency's weakness.
AUD - VERY WEAK: The Australian Dollar is facing significant headwinds from slowing global growth, particularly in China, its largest trading partner. The RBA's dovish stance and concerns about the potential impact of US-China trade tensions further weigh on the currency.
NZD - VERY WEAK: The New Zealand Dollar remains very weak, with the economy officially in recession. The RBNZ's aggressive easing cycle and the country's exposure to global trade risks, particularly with China, are major factors contributing to the currency's underperformance.
USD: VERY STRONG - Resilience in the Face of Incoming Tariffs
The United States, with its robust $29.167 trillion economy (both nominal and PPP GDP as of 2024), is currently under the leadership of President Joe Biden. The Federal Reserve, chaired by Jerome Powell, has set the federal funds rate target at 4.25-4.50% following its December 18th meeting. Geopolitically, the focus is on the incoming Trump administration and its potential trade policies, particularly concerning China and the EU. Key upcoming events include the release of the ISM Manufacturing PMI on January 3rd, the JOLTs Job Openings data on January 7th, and the FOMC minutes on January 8th.
The dollar's "Very Strong" rating is underpinned by a resilient US economy. Despite some mixed signals from recent economic indicators, the labor market remains tight, with the unemployment rate at 4.2% in November. Consumer spending also remains robust, supported by strong wage growth, with average hourly earnings rising 4.0% YoY in November. The Fed's hawkish stance, projecting only two rate cuts in 2025, further reinforces the dollar's strength. However, the softer-than-expected PCE inflation data released on December 20th (0.1% MoM vs. 0.2% consensus) has tempered expectations for aggressive tightening, leading to some short-term USD volatility. December 23rd's Consumer Confidence data came in at a three-month low of 104.7.
The dominant theme influencing the USD is the market's assessment of the Fed's monetary policy path in light of evolving economic data. The emerging theme is the uncertainty surrounding President-elect Trump's trade policies and their potential impact on global growth and the US economy. His recent comments on tariffs and trade with China, the EU, Canada, and Mexico are being closely monitored. The potential for increased tariffs on goods from these regions could reignite trade tensions and impact global economic growth.
Trading Economics forecasts as of December 27th project the DXY Index at 107.19, the 10-year yield at 4.32%, and the S&P 500 at 6,047.91 by the end of Q4 2024. Given the recent strength of the US dollar and the yield differentials with other major economies, the DXY and yield targets seem achievable. The S&P 500 forecast may be slightly optimistic, considering the potential for increased volatility due to geopolitical and trade uncertainties. The US 10 Year Note Bond Yield was 4.63% on Friday, December 27th. The main stock market index in the United States (US500) increased 1203 points or 25.22% since the beginning of 2024. The United States Dollar is expected to trade at 107.80 in 12 months time.
Key Upcoming Events:
ISM Manufacturing PMI (Jan 3): A gauge of the health of the manufacturing sector, which could provide insights into the impact of trade tensions. The consensus is 48.3.
JOLTs Job Openings (Jan 7): A measure of labor demand, which could influence the Fed's assessment of the labor market. The consensus is 7.69M.
FOMC Minutes (Jan 8): Will provide further insights into the Fed's December meeting and the rationale behind the updated "dot plot."
Non-Farm Payrolls (Jan 10): A key indicator of the labor market's strength, which could impact expectations for future Fed policy. The consensus is 200K.
Inflation Rate YoY (Jan 15): Will be closely watched by the Fed for signs of easing or persistent price pressures. The consensus is 2%.
The USD remains a strong candidate for long positions, supported by a resilient economy, a hawkish Fed, and safe-haven demand amid global uncertainties. However, traders should be mindful of potential volatility stemming from trade policy developments and upcoming economic data releases. The potential for increased tariffs under the incoming Trump administration could create significant headwinds for the US economy and the USD.
CHF: STRONG - Franc's Safe-Haven Appeal Endures
Switzerland, with its $942.265 billion economy (2024 nominal GDP), operates under a stable federal republic system with direct democracy elements. The Swiss National Bank (SNB), led by Chairman Thomas Jordan, cut its key policy rate by 50bps to 0.5% in December, exceeding market expectations. Switzerland's political neutrality and strong economic fundamentals continue to attract safe-haven flows, particularly amid European uncertainties. Key upcoming events include the release of the procure.ch Manufacturing PMI on January 2nd and the Inflation Rate on January 7th.
The Swiss Franc's "Strong" rating is underpinned by its safe-haven status and Switzerland's robust economy. Despite the SNB's recent aggressive 50 basis point rate cut, the Franc remains well-supported. The cut was likely aimed at preemptively addressing potential deflationary pressures and managing the Franc's strength, which can impact export competitiveness. Inflation remains low, with the November figure at 0.7% year-on-year, well below the SNB's target. The recent intervention in the Credit Suisse situation demonstrates the SNB's commitment to financial stability.
The dominant theme influencing the CHF is the interplay between safe-haven demand, driven by global uncertainties, and the SNB's monetary policy actions. The SNB's willingness to intervene in the currency market to manage the Franc's strength is a key factor for traders to consider. An emerging theme is the potential impact of the upcoming US presidential election and the possibility of increased trade tensions, which could further boost demand for safe-haven assets like the CHF.
Trading Economics forecasts, as of December 27th, project USD/CHF at 0.90 by the end of this quarter. This forecast seems reasonable, given the Franc's safe-haven appeal and the SNB's proactive approach to managing the currency. The Swiss 10-year government bond yield is projected to trade at 0.26% by the end of the quarter, reflecting the low interest rate environment. The Switzerland Stock Market Index (CH20) is expected to trade at 11,545.40 points in 12 months. The Swiss Franc is expected to trade at 0.90 in 12 months time.
Key Upcoming Events:
procure.ch Manufacturing PMI (Jan 2): Will provide insights into the health of the Swiss manufacturing sector. The consensus is 48.3.
Inflation Rate YoY (Jan 7): A key indicator for the SNB's monetary policy decisions. The consensus is 1.0%.
Retail Sales YoY (Jan 8): Will offer a gauge of consumer spending.
Unemployment Rate (Jan 10): A measure of the labor market's strength. The consensus is 2.5%.
KOF Leading Indicators (Jan 30): A forward-looking indicator of economic activity.
The CHF remains a strong candidate for long positions, particularly against currencies facing economic headwinds or political uncertainty. The SNB's commitment to price stability and its willingness to intervene in the currency market provide a degree of support for the Franc. However, traders should be mindful of the potential for SNB intervention if the Franc appreciates too rapidly.
JPY: STRONG - BoJ's Next Move in Focus
Japan, with its $4.2 trillion economy, is led by Prime Minister Shigeru Ishiba. The Bank of Japan (BoJ), under Governor Kazuo Ueda, maintained its key short-term interest rate at 0.25% in its December meeting, but the Summary of Opinions, released on December 27th, hinted at a potential near-term rate hike. Japan faces ongoing challenges, including deflationary pressures, a high public debt-to-GDP ratio, and a shrinking workforce. Key upcoming events include the release of the BoJ Summary of Opinions on December 27th, the Unemployment Rate on December 27th, and the BoJ's rate decision on January 24th.
The Yen's "Strong" rating is driven by increasing market expectations of a shift in the BoJ's monetary policy. While the BoJ maintained its current stance in December, Governor Ueda's comments and the Summary of Opinions suggest that a move away from ultra-loose policy may be on the horizon. The recent uptick in inflation, with the November core CPI rising to 2.7% year-on-year, and a relatively resilient labour market, with the unemployment rate remaining steady at 2.5% in November, provide further support for the Yen. However, the potential impact of the incoming US administration's trade policies, particularly concerning China, adds a layer of uncertainty.
The dominant theme influencing the JPY is the market's anticipation of a BoJ policy shift. The timing and magnitude of any potential rate hikes are key factors driving the Yen's performance. The emerging theme is the potential impact of US-China trade tensions on the Japanese economy and the Yen. Any escalation in trade disputes could lead to increased demand for the Yen as a safe-haven asset.
Trading Economics forecasts, as of December 27th, project USD/JPY at 153.97 by the end of this quarter and the Nikkei 225 at 38,943.07. These forecasts may prove conservative if the BoJ signals a more aggressive tightening stance. The Japanese 10-year government bond yield is projected to trade at 1.03% by the end of the quarter, reflecting expectations of higher interest rates. The Japan 10Y Bond Yield was 1.10% on Friday, December 27th. The main stock market index in Japan (JP225) is expected to trade at 37,467.71 points in 12 months. The Japanese Yen is expected to trade at 155.55 in 12 months.
Key Upcoming Events:
BoJ Summary of Opinions (Dec 27): Provided further insights into the BoJ's policy deliberations.
Industrial Production MoM Prel (Dec 27): Showed a greater than expected decline of 2.3% in November.
Retail Sales YoY (Dec 27): Showed a greater than expected increase of 2.8% in November.
Housing Starts YoY (Dec 27): Showed a decline of 1.8% in November.
Consumer Confidence (Jan 8): Will provide insights into household sentiment, a key driver of domestic demand. The consensus is 35.
BoJ Interest Rate Decision (Jan 24): The BoJ's policy decision and accompanying statement will be crucial in shaping market expectations for future monetary policy. The consensus is 0.5%.
Inflation Rate YoY (Jan 24): Will be closely watched by the BoJ for signs of sustained price pressures. The consensus is 2.6%.
The Yen remains a strong candidate for long positions, driven by expectations of a BoJ policy shift and its safe-haven status. However, traders should be mindful of potential volatility stemming from US-China trade relations and any surprises in upcoming economic data releases. The BoJ's January meeting will be a pivotal event for the Yen.
EUR: MODERATELY WEAK - Eurozone on Edge
The Euro Area, with a combined GDP of $19.403 trillion, is governed by a complex interplay of national governments and EU institutions, including the European Commission led by Ursula von der Leyen. The European Central Bank (ECB), under President Christine Lagarde, cut its key interest rate to 3.15% in its December 12th meeting. The Eurozone faces significant challenges, including slowing economic growth, rising populism in some member states, and the ongoing war in Ukraine impacting energy security. Key upcoming events include the release of the HCOB Manufacturing PMI Final on January 2nd and the Unemployment Rate for November on January 7th.
The Euro's "Moderately Weak" rating reflects the persistent economic headwinds facing the Euro Area. The recent rate cut by the ECB underscores concerns about growth, and the market is pricing in further easing. While inflation has shown signs of moderating, with the final November reading at 2.2% year-on-year, it remains above the ECB's 2% target. The ongoing political uncertainty in France and Germany, coupled with the broader geopolitical risks, further dampens the Euro's outlook. The HCOB Manufacturing PMI for November came in at 45.2, indicating contraction in the manufacturing sector.
The dominant theme influencing the Euro is the ECB's dovish monetary policy stance in the face of slowing growth. The ECB's commitment to further easing, if necessary, is putting downward pressure on the currency. An emerging theme is the potential impact of President-elect Trump's trade policies on the Euro Area's export-oriented economies. The threat of tariffs on European goods has created uncertainty and could further weigh on the Euro.
Trading Economics forecasts, as of December 27th, project EUR/USD at 1.05 by the end of this quarter and the Euro Stoxx 50 at 4,914.45. These forecasts seem reasonable, given the current economic challenges and the ECB's dovish stance. The German 10-year Bund yield is projected to trade at 2.22% by the end of the quarter, reflecting expectations of a relatively low interest rate environment. The Euro Area Stock Market Index (EU50) is expected to trade at 4,820.47 points in 12 months. The Euro US Dollar Exchange Rate - EUR/USD is expected to trade at 1.04 in 12 months time.
Key Upcoming Events:
HCOB Manufacturing PMI Final (Jan 2): Will provide a final assessment of the manufacturing sector's performance in December. The consensus is 45.2.
Inflation Rate YoY Flash (Jan 7): A preliminary estimate of inflation for December, which could influence the ECB's policy decisions. The consensus is 2.4%.
Unemployment Rate (Jan 7): A key indicator of the labor market's health, which could impact the ECB's assessment of the economic outlook. The consensus is 6.5%.
Retail Sales MoM (Jan 9): Will provide insights into consumer spending, a key driver of economic growth.
Industrial Production MoM (Jan 15): A gauge of the industrial sector's performance, which could provide further clues about the health of the Eurozone economy. The consensus is -0.3%.
The Euro remains a candidate for short positions due to the combination of slowing growth, a dovish ECB, and geopolitical uncertainties. However, traders should be mindful of potential volatility stemming from political developments in member states and any surprises in upcoming economic data releases. The Euro's performance against other currencies will also be influenced by broader risk sentiment and developments in the US-China trade relationship.
GBP: MODERATELY WEAK - Sterling Struggles Amidst Uncertainty
The United Kingdom, with a $3.588 trillion economy, is currently led by Prime Minister Keir Starmer of the Labour Party. The Bank of England (BoE) maintains a 4.75% bank rate, unchanged in its December meeting despite a split vote. The UK faces challenges from tepid economic growth, persistent inflation, and the ongoing uncertainty of its post-Brexit relationship with the EU. Key upcoming events include the release of the Inflation Rate data on January 15th and the preliminary Q4 GDP data on January 16th.
The Pound's "Moderately Weak" rating is a reflection of the UK economy's current predicament. While inflation remains stubbornly high, with the November figure rising to 2.6% year-over-year, economic growth has stalled. The final Q3 GDP data showed 0.0% growth quarter-on-quarter, revised down from the initial estimate of 0.1%. The BoE's decision to hold rates steady in December, despite a surprising three MPC members voting for a cut, highlights the central bank's dilemma in balancing inflation control with growth support. The BRC Retail Sales data, released on December 3rd, showed a significant 3.4% YoY decline, reflecting weak consumer spending.
The dominant theme for Sterling is the uncertainty surrounding the BoE's monetary policy path. The market is struggling to gauge the timing and magnitude of future rate cuts, given the mixed signals from economic data and the split within the MPC. An emerging theme is the potential impact of the new Labour government's policies on the economy, particularly concerning fiscal spending and trade relations. The abolition of Winter Fuel Payments for most pensioners has sparked public debate and could impact consumer spending.
Trading Economics forecasts, as of December 27th, project GBP/USD at 1.26 by the end of this quarter and the FTSE 100 at 8,297.19. These forecasts may prove slightly optimistic, considering the ongoing economic challenges and the uncertainty surrounding the BoE's policy stance. The 10-year gilt yield is projected to trade at 4.36% by the end of the quarter, reflecting expectations of a relatively high interest rate environment compared to other developed economies. The UK 10Y Bond Yield was 4.64% on Friday, December 27th. The main stock market index in the United Kingdom (GB100) is expected to trade at 8,185.51 points in 12 months. The British Pound is expected to trade at 1.25 in 12 months time.
Key Upcoming Events:
Inflation Rate YoY (Jan 15): A crucial indicator for the BoE's monetary policy decisions. The consensus is 2.6%.
GDP MoM (Jan 16): Will provide insights into the UK's economic performance in November. The consensus is 0.1%.
GDP YoY (Jan 16): Will provide a broader perspective on the UK's economic performance. The consensus is 1.5%.
Retail Sales MoM (Jan 17): Another important gauge of consumer spending. The consensus is 0.2%.
Unemployment Rate (Jan 21): A key indicator of the labor market's strength, which could impact wage growth and inflation. The consensus is 4.3%.
While the Pound may offer some short-term trading opportunities based on economic data surprises, the overall outlook remains moderately weak. The combination of sluggish growth, persistent inflation, and uncertainty surrounding the BoE's policy path suggests that the risks are skewed to the downside. Traders may consider shorting the Pound against stronger currencies like the USD or CHF, but should remain nimble and closely monitor data releases and BoE communications.
CAD: WEAK - Loonie Under Pressure
Canada, with its $2.117 trillion economy, is led by Prime Minister Justin Trudeau. The Bank of Canada (BoC), under Governor Tiff Macklem, has set the bank rate at 3.25% following two consecutive 50 basis point cuts. The country is grappling with slowing economic growth, a dovish central bank, and uncertainty surrounding future US trade policies under the incoming Trump administration. Key upcoming events include the release of the Balance of Trade figures on January 7th and the Ivey PMI on the same day.
The Canadian dollar's "Weak" rating reflects the challenging economic conditions facing the country. GDP growth has slowed significantly, with Q3 2024 data showing only a 0.3% quarter-on-quarter expansion, and the preliminary estimate for November's monthly GDP pointing to a 0.1% contraction. The BoC's recent rate cuts highlight concerns about the economic outlook, and the market is pricing in further easing. The persistent weakness in oil prices, a crucial export for Canada, further weighs on the CAD. Additionally, the unemployment rate rose to 6.8% in November, its highest since September 2021.
The dominant theme influencing the CAD is the uncertainty surrounding the BoC's monetary policy stance and the slowing Canadian economy. The BoC's cautious approach to further rate cuts, despite the weak growth data, has created uncertainty about the future path of monetary policy. The emerging theme is the potential impact of US trade policies under the incoming Trump administration, particularly the possibility of increased tariffs, which could significantly impact Canada's export-oriented economy.
Trading Economics forecasts, as of December 27th, project USD/CAD at 1.42 by the end of this quarter and the TSX at 25,515.54. Given the current economic headwinds and the dovish stance of the BoC, these forecasts seem reasonable. The 10-year government bond yield is projected to trade at 3.13% by the end of the quarter, reflecting expectations of a relatively low interest rate environment. The Canada 10-Year Government Bond Yield is expected to trade at 3.09% in 12 months time. The Canada Stock Market Index (TSX) is expected to trade at 25,141.18 points in 12 months. The Canadian Dollar is expected to trade at 1.43 in 12 months time.
Key Upcoming Events:
Balance of Trade (Jan 7): Will provide insights into the performance of Canada's export sector, a key driver of the economy. The consensus is C$-1.5B.
Ivey PMI s.a (Jan 7): A gauge of business activity, which could provide further clues about the health of the Canadian economy. The consensus is 52.
Unemployment Rate (Jan 10): A key indicator of the labor market's strength, which could influence the BoC's policy decisions. The consensus is 6.8%.
Inflation Rate YoY (Jan 21): Will be closely watched by the BoC for signs of easing or persistent price pressures. The consensus is 1.8%.
BoC Monetary Policy Report (Jan 29): The report will provide a detailed assessment of the economic outlook and the BoC's policy stance.
Considering the weak economic data, the dovish BoC, and the uncertainty surrounding US trade policies, the CAD remains a candidate for short positions. The potential for increased tariffs under the incoming Trump administration adds to the downside risks for the CAD. However, traders should be mindful of potential volatility stemming from commodity price fluctuations and any surprises in upcoming economic data releases.
AUD: VERY WEAK - Aussie Under the Pump
Australia, with its $1.802 trillion economy, is led by Prime Minister Anthony Albanese. The Reserve Bank of Australia (RBA) maintained its cash rate at 4.35% in its December meeting. The Australian economy faces challenges from slowing global growth, particularly in China, its largest trading partner, and domestic concerns about a potential technical recession. A key upcoming event is the release of the RBA meeting minutes on December 24th.
The Australian dollar's "Very Weak" rating reflects the significant headwinds facing the Australian economy. The recent GDP data showing only 0.3% quarter-on-quarter growth in Q3 2024 and a decline in business investment have fueled concerns about a potential recession. The RBA's dovish stance, with the market pricing in a potential rate cut as early as February 2025, further weighs on the AUD. The ongoing weakness in commodity prices, particularly iron ore, a key Australian export, also contributes to the currency's underperformance. The RBA minutes released on December 24th further emphasized the data-dependent approach, with the board acknowledging easing inflation risks but also highlighting persistent uncertainties.
The dominant theme influencing the AUD is the concern over slowing economic growth and the RBA's monetary policy response. The market is closely watching for any signs of further economic weakness, which could prompt the RBA to adopt a more aggressive easing stance. The emerging theme is the potential impact of increased US-China trade tensions under the incoming Trump administration. Any escalation in trade disputes could negatively impact the Australian economy and the AUD, given Australia's close economic ties with both countries.
Trading Economics forecasts, as of December 27th, project AUD/USD at 0.64 by the end of this quarter and the ASX 200 at 8,422.22. These forecasts may prove optimistic, given the downside risks to the Australian economy and the potential for further RBA easing. The Australian 10-year government bond yield is projected to trade at 4.33% by the end of the quarter, reflecting expectations of a relatively low interest rate environment. The Australia 10-Year Government Bond Yield is expected to trade at 4.28% in 12 months time. The Australian Stock Market Index is expected to trade at 8,284.18 points in 12 months time. The Australian Dollar is expected to trade at 0.63 in 12 months time.
Key Upcoming Events:
Balance of Trade (Jan 9): Will provide insights into the performance of Australia's export sector, a key driver of the economy.
Westpac Consumer Confidence (Jan 16): A gauge of consumer sentiment, which could provide clues about future spending patterns.
Unemployment Rate (Jan 16): A key indicator of the labor market's strength, which could influence the RBA's policy decisions. The consensus is 4.3%.
Inflation Rate YoY (Jan 29): Will be closely watched by the RBA for signs of easing or persistent price pressures. The consensus is 2.2%.
The AUD remains a candidate for short positions, given the weak economic data, the dovish RBA, and the downside risks from global trade tensions. However, traders should be mindful of potential volatility stemming from commodity price fluctuations and any surprises in upcoming economic data releases.
NZD: VERY WEAK - Kiwi on the Back Foot
New Zealand, with its $249 billion economy (2023 nominal GDP), is led by Prime Minister Christopher Luxon. The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate (OCR) to 4.25% in November 2024, reflecting the challenging economic climate. New Zealand's economy is officially in recession, with two consecutive quarters of negative GDP growth. Key upcoming events include the release of the Inflation Rate QoQ for Q4 on January 21st and the Balance of Trade figures on January 29th.
The New Zealand dollar's "Very Weak" rating is a direct consequence of the country's economic recession and the RBNZ's aggressive monetary easing. The RBNZ's decision to remove its dual mandate and focus solely on inflation control underscores the central bank's commitment to stimulating the economy. However, the market is already pricing in further rate cuts, with expectations that the OCR could fall to 3.0% by the end of 2025. The ongoing weakness in commodity prices, particularly dairy, a key New Zealand export, further weighs on the NZD.
The dominant theme influencing the NZD is the ongoing recession and the RBNZ's dovish stance. The market is highly sensitive to any signals from the central bank regarding the future path of monetary policy. The emerging theme is the impact of the new government's policy changes, particularly the review of Treaty of Waitangi legislation and policies related to the Māori language and co-governance. Any missteps in these areas could lead to social unrest and negatively impact investor confidence.
Trading Economics forecasts, as of December 27th, project NZD/USD at 0.57 by the end of this quarter. This forecast seems reasonable, given the current economic challenges and the RBNZ's dovish stance. The New Zealand 10-year government bond yield is projected to trade at 4.43% by the end of the quarter, reflecting expectations of a relatively low interest rate environment. The New Zealand Stock Market (NZX 50) is expected to trade at 12,831.18 points by the end of this quarter. Looking forward, we estimate it to trade at 12,636.43 in 12 months time. The New Zealand Dollar is expected to trade at 0.57 in 12 months time.
Key Upcoming Events:
Inflation Rate QoQ (Jan 21): Will provide insights into price pressures in the New Zealand economy. The consensus is 0.3%.
Balance of Trade (Jan 29): Will offer a gauge of New Zealand's external trade performance. The consensus is NZ$ -0.34B.
ANZ Business Confidence (Jan 30): A measure of business sentiment, which could provide clues about future investment and hiring patterns.
The NZD remains a candidate for short positions, given the recessionary environment, the RBNZ's dovish stance, and the country's exposure to global trade risks. However, traders should be mindful of potential volatility stemming from commodity price fluctuations and any surprises in upcoming economic data releases. Any shift in the RBNZ's tone or an improvement in the economic outlook could provide some support for the NZD.
Conclusion
Top 5 Key Events for the Upcoming Week (Dec 29 - Jan 10):
US ISM Manufacturing PMI (Jan 3): Potential market mover, especially if it deviates significantly from expectations.
US JOLTs Job Openings (Jan 7): Could provide insights into labor market tightness and influence Fed policy expectations.
US, EA, UK, CA Inflation Rate data (Jan 7, Jan 15, Jan 17, Jan 21): Will be key in shaping central bank policy expectations.
US Non-Farm Payrolls (Jan 10): A crucial indicator of the US labor market's health, with potential to significantly impact the USD.
UK GDP MoM (Jan 16): A crucial indicator of the UK's economic health, which could influence the BoE's policy decisions.
Sources: Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Swiss National Bank, Reserve Bank of Australia, Reserve Bank of New Zealand, Bank of Canada, Bloomberg, Reuters, Trading Economics.