We have seen progress in Brexit negotiations between the UK and the EU, with the main outstanding issue being the hard border with the Irish, it is likely that this will come in time, there is a EU summit in October that both parties hope full agreement will be reached by then.
But once they reach an agreement the UK have to still get the agreement from Parliament over here, which at the moment seems very unlikely, with both Remainers and leavers not liking Theresa Mays Brexit deal, or as she calls it the ‘Chequers Deal’ so although we have seen the GBP rally on the back of good news there is plenty more time for it to go ‘Pete Tong’ as they call it. GBP is very sensitive to Brexit, so any interviews or speeches could randomly be done and could cause effects on the market
Trade Tariffs is still the main topic on the agenda for the USA, with them yet to reach an agreement on a trade deal with Canada as part of NAFTA. USA and China both look set to put more tariffs on each other also, with Donald Trump stating we will not do a trade deal with China at the moment due to the terms they are asking for. China has huge trade barriers for foreign companies to enter their market, something Trump wants rid of if as America don’t have these barriers for Chinese companies to operate there. As we have seen in recent months the USD has strengthened once the threats of tariffs are brought up, so watch out for the S & P 500 and Dow Jones, if they start to plummet then USD and JPY are likely to strengthen.
We have seen a lot of weakness in the CAD lately this has mainly been down to NAFTA negotiations not reaching a deal yet….. NAFTA is important to Canada as over 60% of Canada exports go to the USA, so USA are a large customer of theirs, if the USA take their business elsewhere then this would cause a shock to the economy and we will see a fall in GDP for the Canadian economy. So its important they reach a deal, but with PM Trudeau stating we will rather have no deal then a bad deal with NAFTA this shows they are playing hard ball. So investors at the moment aren’t confident with the Canadian dollar, plus this is the main concern for the Canadian Central Bank. Economists are predicting a rate hike next month but we are yet to see this priced in to the market. The CAD economy continue to produce good a solid data.
JPY and CHF
These are both safe haven currencies which people tend to buy in times of risk aversion, so when stocks start to fall people are investing in these currencies, hence the strength, of late the CHF data has seen an uplift and even this mornings GDP data print for CHF come out showing a 0.7% increase in quarterly figures, which is a strong figure. US stocks have increased of late causing the JPY weakness, also with the earthquake hitting Japan people seem to be less confident in investing in the currency. Further Trade wars will cause these to rise
AUD & NZD
We have seen AUD & NZD weakness these last couple of months mainly down to the fact of these trade wars, both of these economies are export reliant countries they need to exports goods as their main source of income. China are huge trading partners of these, so any effect on Chinas economy will have a big knock on effect on these two. These two have also been producing a downturn in data lately also, leaving the central banks with a stance that they are not going to be hiking rates any time soon. Both of these economies are large producers of commodities, so they are heavily linked to commodity prices, AUD being Gold, copper and Iron ore. NZD being Gold, dairy, meat, Aluminium. NZD main export being dairy has seen prices fall quite a bit recently.
European Central Banks main focus is on Core CPI (Inflation), they would like it to reach up to 2% before they consider any interest rate hikes, in July we saw it increase to 1.1% but Augusts data last week failed to deliver again with it slipping back down to 1% – ECB are looking at ending their QE programme come the end of 2018, but if we start to see the Euro inflation get weaker then it is possible that they may extend QE – This will cause a huge euro sell off as its priced into the market that this will end come the end of the year, also trade tariffs are going to strongly effect the euro, the USA have a large annual deficit against the Euro on trade that Donald Trump is looking to close off. In order to increase inflation then the currency needs to weaken as this will cause a rise in export costs. Euro also has gaps from April 2017 that have not been filled yet, so watch this space, they are likely to fill over the coming months