CHF rises as speculators cover short position
USD/CHF has completely collapsed last week as it fell as much as 2.60%, sliding from 1.0015 to 0.9755, following the Jerome Powell’s dovish performance during the last FOMC press conference. The fall in US interest rates has suppressed one of the last strong incentive for investors to hold the greenback, making it less expensive to short. Overall, safe havens assets have increased more than average against the buck, with the Swissie, yen and gold leading the pack. Excluding last January flash crash in the yen, USD/JPY fell to the lowest level since April 2018, while the yellow metal broke the $1,400 threshold to the upside – rising a 6-year high – which suggests that investors feel increasingly uneasy with the current economic situation and equity valuations.
Looking at speculators’ positioning, one notice that net short CHF positions continued to decrease last week, falling from 34% of total open interest to 26%. Similarly, net short JPY positions decreased to 13% from 26% a week ago.
The situation will remain tense until at least the G20 meeting that takes place on June 28-29. Investors hope that Trump and Xi will find an agreement that could put an end to the ongoing trade war between the two world’s largest economies. However, we believe that even in that case markets won’t return to normal as President Trump would bring its trade war to Europe. Be ready for a shaky summer.
RBNZ set for a second rate cut this year
The global risk-on sentiment from last week has given the kiwi a strong boost following a drag amid geopolitical developments in the Gulf of Oman and the announcement made by China to raise anti-dumping duties on seamless alloy steel tubes. Yet although the New Zealand Central Bank is not expected to move its cash rate on Wednesday, it is most likely going to confirm its dovish bias and hinting towards a 0.25% rate cut in August 2019 as inflation pressures have slowed in first quarter 2019.
The RBNZ already cut its cash rate to record low 1.50% in May while RBNZ Governor Adrian Orr is expected to confirm that further easing is likely as inflation remains below midpoint target range of 2% (1Q CPI y/y: 1.50%) and despite an uptick in 1Q GDP figures of 2.50% (prior: 2.30%) released last week. The RBNZ does not respond to domestic market deterioration since labor market is tight while wage growth showed a pick up – it rather responds to rising global uncertainties and follows the dovish trend shift of major central banks. There is however good reasons to consider a decline in NZD following the announcement on Wednesday.
Currently trading at 0.6611, NZD/USD is heading along 0.6630 as investors are waiting for developments in US – China trade discords ahead of G20 meeting in Osaka.
