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Week ahead - GDP, CPI & Unemployment

This week ahead, we have a plethora of data coming out across the world dictating the strength of "main street" and its contribution to the Coronavirus Pandemic's global recovery.

With that said, the Coronavirus continues to present itself as a factor pulling back the global economy's growth. With financial markers such as Brent Crude and WTI prices returning to pre-pandemic levels, evidence of life post Coronavirus slowing down is coming into sight. However, as shown, even the countries who handled the Coronavirus well indicate that we still have to grapple with the strengthening strains.

Case in point – I am currently writing this at home, as New Zealand, renowned for their Coronavirus Response, has placed their largest city, Auckland, back into a level 3 lockdown following three community transmission cases from the stronger UK Strain.

However, as we all know, financial markets do not sleep. Here is your week ahead.

Sunday, 14th Feb – Japan's GDP Figures Quarter over Quarter

Japan's GDP Figures

Japan has not had the best success regarding the fight against the Coronavirus. Initially praised for their no lockdown strategy, dependent on the mask-wearing, cleanliness culture Japanese citizens exhibit. Three waves of the Coronavirus later, each larger than the previous, and the Japanese Government depend on the vaccine to help save their citizens from further infections.

However, the Japanese economy is showing its strength, and analysts predict they may come out of the pandemic stronger than expected. Unemployment has stayed at a modest 2.9% due to Bank of Japan's corporate lending scheme, alongside bankruptcies falling by around 20% from a year earlier in recent months. Analysts predict GDP growth of 10.1% in the last quarter of 2020.

Tuesday. 16th Feb – Eurozone's GDP Quarter over Quarter and Year over Year

Last year today, the Coronavirus had started to hit the shores of many countries. A couple of months later, most of the Eurozone would have concluded that their lockdowns were adequate in eliminating most of the virus and that citizens may freely roam around Europe for the summer.

That decision would cost them many more lives and setback the road to recovery.

It is now 2021, and we're approaching the same period in which these decisions were made. However, now, Europe has been slowly rolling out the Coronavirus vaccine to citizens. However, the President of the European Commission, Ursula von der Leyen, has stated that the EU was late to rollout and authorize Coronavirus vaccines and are "still not where we want to be." However, a better than expected GDP print may mean stronger Euro, which may be detrimental to exports.

Wednesday, 17th Feb – United Kingdom's CPI Figures

With the United Kingdom slowly getting a grasp on the Coronavirus with the help of a vaccine, the new strain provides new challenges as British scientists state the U.K Coronavirus strain is "likely" 30% to 70% deadlier than the original. With that said. Boris Johnson is Optimistic that the Coronavirus Lockdown can be eased soon – however, as history shows, lockdown is only effective if there has not been community transmission for weeks. Analysts predict CPI to drop slightly to 0.5% from 0.6% year over year.

Wednesday, 17th Feb – U.S Retail Sales

Like the United Kingdom, the United States has been given a tailwind in the form of a vaccine. However, similar to the United Kingdom and Europe, the vaccine's distribution infrastructure has been criticized. With the U.S having many months to prepare for the eventuality of a vaccine. Cases are down from their all-time highs, although still above 100,000 for their daily average. Analysts predict U.S Retail Sales to rise to 0.7% this week ahead, up from -0.7% a month before.

Thursday, 18th & Friday, 19th Feb – Australia's Unemployment Rate for Jan and Retail Sales Month over Month.

Australia has recovered from a devastating 2nd wave by introducing a drastic lockdown near the middle of 2020. However, there have been many flare-ups around Australia, with one in Sydney and one currently in Melbourne, which has caused the local Government to implement a short lockdown. However, there has been evidence over the past couple of months of Australians using the money they have saved during the past lockdowns and spending it. With that said, analysts predict a slight fall in the unemployment rate to 6.5% from 6.6 in January, with retail sales expected to bounce to 2% from a negative 4.1%.

Busy week ahead. Trade safe, and stay safe.

RBA Slashes rates to 0.1%

As predicted by many analysts, the Reserve Bank of Australia has slashed rates from 0.25% to 0.1%, a 15-point cut. Furthermore, they've decided to buy back over $100 Billion government bonds of maturities around 5 to 10 years over the next six months.

Interest Rates Slashed to 0.1%
AUD/USD down 0.44% on the news

The Australian Dollar again, the U.S dollar was down slightly at 0.44%. The ASX 200 was up around 1.88% on the announcement.

Reserve Bank of Australia less dovish on the future of the Economy

The Bank stated they believe that the "economic recovery is underway and positive GDP growth is not expected in the September quarter" despite the restrictions in Victoria. They predict that GDP growth will be around 6% over the year to June 2021.
They believe that the employment rate is expected to be high – however, it may peak at around 8%, rather than the 10% expected previously. The RBA stated that they are "committed to doing what it can to support the creation of jobs."

This is the third time this year that interest rate has been cut. From 0.75% - 0.5%, 0.5% to 0.25% and now 0.25 to 0.1%.

Treasurer Josh Frydenberg stated that many families would benefit from the rate cut may be able to and lift the country out of a recession. He references someone with a $400,000 mortgage that may save around $1,000 a year from the 0.75% - 0.1% basis point cut. With that said, interest rates are relatively low, so the benefits may be negligible to many, considering the potential further costs of re-mortgaging.

Low rates may be welcome for the housing market of Australia

Demand for housing may increase on the rate cut, possibly helping the Australian economy boost out of the current recession caused by the Coronavirus. However, some analysts predict that the RBA's cut will not increase demand as rates are at rock bottom. ANZ" s Banking Group Ltd CEO Shayne Elliot stated that "If homeowners don't want a mortgage at 2.5%, it's not clear to me they'll want one at 2.4%."

With the lockdown forcing many Australian Citizens to stay at home, the nation's saving ratio soared to a 46-year high to almost 20%. Furthermore, there is evidence from the RBA that credit card balances are being paid off faster. These are positive factors, which may push Australia out of the recession quicker once lockdowns and the Coronavirus are in the past.

Some analysts are not convinced the RBA is not doing enough. James McIntyre, Australia economist at Bloomberg Economics, stated, "with a sluggish demand outlook and a weaker labour market justifying further policy support, it is difficult for the RBA to make a case to hold back," insinuating he believes that the RBA must do more to push Australia out of the slump.

It is essential to keep an eye on the other side of the equation, the U.S dollar, as the election approaches less than a day. Trade safe!

Week ahead – United States Election!

With over 93 Million US Citizens voting early, surpassing two-thirds of all 2016 and consisting of 43% of registered voters, the United States election is finally two days away this week ahead. Many regard this as one of the most important Presidential Elections in history, possibly changing society's fabric in the United States for the foreseeable future.

Although the Presidential Election will probably get most of the attention, this week continues to be eventful with a lot of data being released. Here is your week ahead.

Dates are in NZDT.

FiveThirtyEight predicts in 20 out of 22 scenarios Biden will win the Presidency

Monday, 2nd November – US ISM Manufacturing

A key point in Trump's campaign in 2016 was his promise to bring jobs back to America. However, an amended NAFTA agreement, alongside many more amendments to foreign policy, has lost many manufacturing jobs. For example, over one in four Michigan manufacturing jobs have been lost since the NAFTA agreement amendment.

The Coronavirus has just brought more pain to the sector, with an estimated 381,000 manufacturing workers in Michigan, Ohio, Wisconsin and Pennsylvania were laid off or furloughed – with all, but one (Pennsylvania) states being in the midwestern part of the USA. These states were one of the key reasons why Donald Trump was elected in 2016.

As states slowly open up, the Coronavirus continues to run rampant, affecting workers employed in the manufacturing sector. Unlike the tech and finance sector, manufacturers can not work from home. With that said, the US's ISM is predicting to increase slightly from last month to 55.6 this week ahead, as suppose to 55.4 last month.

Tuesday, 3rd November and Wednesday, 4th November – RBA Interest Rate decision and Australian Retail Sales

Australia reached a positive milestone yesterday – zero community transmission. The country has a long road to recovery ahead of them, and the Reserve Bank of Australia acknowledges that. With dovish tones in the previous RBA minutes, analysts predict a 150 point basis cut, from 0.25% to 0.1% tomorrow. However, Insight Manager at Finder, Graham Cooke believes that further cuts will not make dramatic changes to the finances of ordinary Australians, stating that "a further 10-15 point basis cut us unlikely to have much of an impact on the economy –however, our experts seem to think that the RBA is in "every little bit helps" mode."

Furthermore, Retail Sales will also be released a day after the decision. Analysts predict a further 1.5% decline in Retail Sales as the Coronavirus continues to take a longer-term toll on employment.

Wednesday, 4th November – US Presidential Election.

The event everyone and I mean everyone, including your mother, will be watching.

There is nothing much to say about this other than to buckle in. Many polls state that Biden is likely to win. FiveThirtyEight predicts that in 20 out of 22 scenarios, Biden is stated to win. Other polls from firms such as RealClearPolitics see Biden leading over 9%.

Judging by the polls, the only way Trump can win is if he wins all of the swing states. The popular vote in NYC and California have Biden to win anyways, which means the popular vote will be absorbed within the Electoral college (tl:dr, the RealClearPolitics poll may be closer than is stated).

However, the polls showed Hillary winning in 2016. And we all know what happened then.

Friday, 5th November – Bank of England Interest Rate Decision

The UK struggling with lackluster leadership

The UK has finally imposed a stricter lockdown (however, not a full lockdown) on citizens for one month, with analysts predicting that the lockdown may be extended further to allow the UK to have their Christmas not under lockdown. The Bank of England is set to inject over 100 Million pounds buying back bonds to fight the second wave.

However, this may not be enough, with analysts at HSBC predicting that the BoE's bond-buying regimes are "running out of room," which may leave the central bank with no choice but to implement negative rates. Governor of the Bank of England, Andre Bailey, has not ruled negatives rates but has described evidence of their effectiveness as "pretty mixed" and that negative rates might be most effective when an economy is in a recovery phase for the economy to take full advantage of the negative rates. Analysts predict rates to stay at 0.1%.

Saturday, 5th November – US Non-Farm Payroll

A key indicator showing how well the US economy is recovering, Non-farm payrolls is predicted to print 700,000 new jobs, up from 661,000 the month before.

This week ahead is going to be a turbulent one. Strap yourself in, and brace for the ride.

Stay safe, Trade safe. Have a good week!

Is the Australian dollar set to fall on a Biden win?

We are 13 days away from the election. Many polls state that Biden is winning the votes – however that’s what happened in the 2016 election. With big banks citing a decline in the Dollar over a Biden win, what will happen to commodity currencies such as the Australian Dollar and the Canadian Dollar against the US Dollar?

The Australian Dollar against the US Dollar has had a strong comeback, up 30% from its March lows. This was due to Australian commodity prices such as copper, nickel, and iron rebounding as manufacturing restarted worldwide.

Australian Dollar against green policy

If Biden were to be re-elected, a risk to the Australian Dollar is his supposed $2 Trillion push for a greener future, pushing initiatives that would create the opportunity cost for using cheap power sources such as oil and coal as supposed to greener alternatives such as solar and wind, lower. A report by BloombergNEF showed that the “Levelized cost of electricity for onshore wind projects has fallen 9% to $44 megawatt-hour since the second half of last year… with solar [declining] 4% to $50 a megawatt-hour”. They also cite that prices are lower in countries such as the United States, China, and Brazil, and that “Best in class solar and wind projects will be pushing below $20 per megawatt-hour this side of 2030”. This is not good for commodity currencies such as the Australian Dollar and the Canadian Dollar, as they are notoriously known to sell off when green policies are enacted.

Australian Dollar against the US Dollar may be bracing for a fall come election time in the US

Therefore, it is likely that the Australian Dollar will sell off if Biden is elected. Given a predicted selloff too in a US dollar, we may see the pair make a violent move to the downside. Near the end of September, we saw a selloff in the pair, retesting that healthy 0.7 support level. The AUD/USD has been ranging ever since between the 0.7 and the 0.725 marks. However, a Biden win may see the currency pair down to 0.6925, a historically strong support/resistance level, and a full Fibonacci retracement from 0.74 to 0.6925.

Are you looking at the Australian Dollar?

Is the future for the Australian dollar downwards?

AUD/USD has been a strong performer in the currency markets, returning just under 30% since its March lows. We talked about how the Australian dollar was poised for a rally on a market recovery earlier this year.

Australian Dollar selling off in the past couple of days

The market has recovered, and the Australian dollar has recovered with it. This was due to the Australian dollar being mainly a "commodity currency," with manufacturing worldwide slowly starting to pick up, specifically in China. Erik Nelson from Wells Fargo stated that "If you consider some of the fundamentals in Australia, you can justify the valuation of the Australian dollar at current levels" and that Australia is "very well positioned right now" about its exports to China.

However, the AUD/USD has fallen over 3% in the past couple of days. This has been on a multitude of factors, the US Dollar strengthening on Donald Trump's recovery, recent weakness in the oil prices, and the tremulous Coronavirus situation in Australia have pushed the Aussie lower.

Is this a long term trend for the Australian dollar, or just Market Volatility?

Yesterday, the RBA left rates at 0.25%, which it has been since the initial rate cut in March. RBA's Governor Philip Lowe stated that the decision was based on the uneven recovery of the global economy due to the Coronavirus – "The global economy is gradually recovering after a server contraction due to the pandemic. However, the recovery is uneven and its continuation is dependent on the containment of the virus".

Analysts are predicting a rate cut in the next six months. However, there is little chance for rates to fall into the negative as Governor Lowe historically has been against negative rates, citing that they are "extraordinarily unlikely in Australia" due to the documented downsides on consumption sentiment.

Furthermore, Australia has been able to control its second outbreak in the state of Victoria, enabling them to focus on the path to recovery from the Coronavirus. The RBA also stated that "Labour market conditions have improved somewhat over the past few months and the unemployment rate is likely to peak at a lower rate than expected"

With elections coming up in the United States, the Trans-Tasman bubble between New Zealand and Australia coming to fruition, and Australia slowly recovering, market volatility may affect the AUD/USD pair, rather than a long term trend. I believe the Australian dollar's tailwinds are a lot stronger the potential headwinds it may face.

Anish Lal has some excellent analysis on the recent market drop due to Trump's tweet - you can watch it here.

Central banks! Your week ahead

Central banks, central banks, central banks. This week ahead, central bankers from all around the world will conduct their annual Jackson hole meeting in which historically they discussed the macro-environment and, of course, monetary policy. However, due to Coronavirus restrictions, they cannot meet at Jackson Hole for the first time in 40 years. Like many meetings, they will be hosting a virtual meeting, available for the public to tune into. The main focus? “Navigating the Decade Ahead: Implications for Monetary Policy” – Or put simply, Monetary policy: Coronavirus edition. Here is your week ahead.

Wednesday, 26th August – U.S. Durable goods order

The Coronavirus continues to ravage the United States, with no visible end in sight. Currently, the United States recorded 48,163 new cases today, with 1,013 deaths. It is an awesome sight (the literal meaning of awesome, as in awe-some) as the U.S. stock market continues to rally to new highs, and billionaires see their wealth surge. The U.S. Durable Goods Order figure measures the cost of orders received by manufacturers for durable goods, including vehicles and appliances. As these are significant investments, they provide a good bearing on U.S. consumers (buying a new car when you just got laid off is unlikely). Therefore a higher than expected figure should boost U.S. equities and the U.S. dollar. The previous print was at a 7.6% increase in the cost of durable goods purchased, with consensus to see that number rise only 3.6% this month. 

Thursday, 27th August – Switzerland GDP Quarter over Quarter

With just under 40,000 confirmed cases, it is fair to say that Switzerland and many nations are continuing to grapple with the fight against the Coronavirus. However, just like with many other European countries, Switzerland is experiencing a resurgence of the virus. Switzerland recorded more than 300 new Coronavirus cases on Friday just before their quarterly update on Thursday. Analysts predict a print of -8.7% decline in GDP, from a 2.6% decline in the first quarter. 

 

Thursday 27th August – Jackson hole meeting, US GDP, Fed Jerome Powell Speech and Bank of Canada’s Governor Bailey Speech

Obviously not in Jackson hole due to the Coronavirus, Central banks from all around the world will host an online meeting discussing how monetary policy will be affected in the future from the Coronavirus pandemic. For the first time in 40 years, not only will the meeting not take place at Jackson Hole, but the conference will be available for the public to watch live. Furthermore, US GDP figures alongside both Fed Chairman Jerome Powell and Governor Macklem from Bank of Canada is set to speak. There is no doubt that this will be a stormy day in the markets.

 

Friday, 28th August -BoE  Governor Bailey speech

The United Kingdom continues to record new Coronavirus cases, logging over 1,041 new cases today. Investors and traders are wary of the possibility of negative rates in the future, with Deputy Governor Dave Ramsden stating that the BoE has “further headroom” to go with regards to monetary policy. The Bank of England currently holds interest rates at 0.1% and maintained its 745 Billion asset purchase target. They predict that the U.K. economy will not return to its pre-Covid levels until the end of 2021. 

 A big week ahead with monetary policy and forecasts from top Economists and Central bankers. Trader and Investors should be wary of the speeches ahead before placing any trades this week. 

We're starting something new this week! If you prefer to listen to the articles rather than reading them, we will slowly make them available on all platforms where podcasts are supported! For now, you can listen to the article here.

 Safe trading!  

Australian dollar to 75c?

The Australian Dollar has seen a strong bull rally - up 12% from its March lows. Now bulls are edging for the currency to push higher.

AUD/USD slowly creeping up to that 75c mark, not seen since May 2018

A possible push of the Australian dollar to 75c against the U.S dollar is a level not seen since May 2018. During that period where it first dipped below 75c, there were many retests in the following months before we finally saw a sold push below the 75c mark. This historical dynamic may require bulls to have strong momentum if they want to pass that 75c mark.

The Australian Dollar is noted for being a commodity currency – that is, the value of their currency against other currencies is mainly correlated from the price of commodities they export. You can see this correlation with the price of Iron and Copper.

That 12% push from its March low has been due to its largest export partner, China, seeing their demand for Australian resources sour amongst the Coronavirus pandemic and their souring relationship regarding barley and wine exports.

Australian Dollar underpinned by Commodity Demand

When put side by side, the correlation between Copper and the Australian Dollar is clearly visible.

Australia’s Minister for Resources, Keith Pitt told the Financial Times in a recent interview that the mining and energy sectors were underpinning the domestic economy, which has been battered by a second wave of the Coronavirus that has forced many businesses in Melbourne to shut their doors for another couple of weeks. He also states that “62% of China’s Iron ore imports came from Australia in 2019-2020,” reiterating that commodity correlation.

However, more institutions are bullish on the Australian Dollar. Notably. Commonwealth Bank of Australia stated that “the recent rally in some commodity prices seem unstoppable,” hinting at the idea that commodity prices are an essential driver of the Australian Dollar.

It also helps that over the past couple of weeks; there has been a trend of de-dollarisation amongst traders and investors. This may be due to a mix of factors, including a 34% rally in Gold, unprecedented fiscal stimulus and quantitative easing, and a strong rally in U.S equities forcing investors and traders out of the U.S dollar.

If we continue to see strong demand for commodities such as Copper and Iron, we may see both the Australian Dollar and the prices for those rally in tandem together.

Speaking of Copper – a senior analyst here at BlackBull Markets, Anish Lal did an excellent technical overview video on whether copper will hit 80c – You can watch it here.

Safe trading!

Interest rates, Non-farm payroll - Week ahead

Coronavirus cases have passed 18 million across the globe, with deaths predicted to surpass 700k by the end of this week ahead. Markets are slowly pricing in how the Coronavirus is affecting countries' respective markets. The US Dollar is down 10% from its March highs, and the ASX is slowly edging down, booking losses three weeks in a row. This is your week ahead.

U.S Dollar Index

Tuesday, 4th August – Australian Retail Sales MoM and RBA Interest Rate Decision

The overarching story with regards to the Australian economy is the current situation in Victoria. They have seen triple-digit gains in Coronavirus cases, with cases jumping to 671 new infections today from 397 just a day before. The Premiere for the state of Victoria, Daniel Andrews, declared a state of disaster as they officially admit that they have lost full control over the virus. However, Daniel has not pushed for total lockdown yet, continuing with strict curfews and restrictions on how far and how many individuals can leave the house. This double-digit jump in infected cases comes when the states' largest city, Melbourne, has been in a stay at home order for the past three weeks. This puts immense pressure on the Premiere to impose mandatory lockdown, like what took place in New Zealand. Education Minister Dan Tehan stated that the federal government would "absolutely" support Victoria in ramping up its measures. The events occurring in Victoria may sway the Reserve Bank of Australia to cut rates even lower this week ahead. The rate currently sits at 0.25%, after a steep cut of 50 basis points from 0.75% at the peak of the Pandemic.

With retail sales jumping for the month of June by 2.4%, it is still seen whether Australia Citizens have been purchasing fewer goods as the Coronavirus ramps up. However, analysts predict a similar growth of 2.4% for the month of July.

Tuesday 4th August – New Zealand Employment / Unemployment Figures

With New Zealand returning to a relatively normal, the effects of the lockdown slowly emerge, especially on the labor market. The unemployment rate was 4.2% in the first quarter. However, many analysts believe that this number was propped up because the government heavily subsidized wages and introduced substantial assistance. Bank of New Zealand Analysts predicts a jump in the unemployment rate this week ahead to 5.9%, with ANZ economists forecasting 5.7%. However, ANZ states that these figures may understate the real weakness in the labor market, saying that "looking ahead, official data will, unfortunately, give a poor steer on the true state of the labor market for a while, due to volatility and temporary policy supports that are delaying job losses."

Wednesday, 5th August – Euro Retail Sales YoY

With the European Union passing a 750 Billion Euro fund to boost their economy, traders and investors are looking out for the continents' retail sales number to identify whether citizens are spending. Analysts at ING predict "a sharp rise.. to be expected before things start to level off." Retail sales are an excellent bearing as to how fast the economy is recovering. However, analysts predict a sharp drop by 5.1% in retail sales Year over Year, with last year's results being a drop in 0.2%.

Thursday, 6th August – Bank of England Policy report, Monetary policy summary, Interest rate Decision, BoE Governor Bailey speech

With Prime Minister Boris Johnson delaying the nationwide lockdown's de-escalation for two weeks due to Coronavirus continuing to ravage the country, he has finally hinted that de-escalation may come in the following weeks. Currently, the United Kingdom has had over 305k confirmed Coronavirus cases, with 46,200 Coronavirus deaths. There is a chance that the Bank of England brings rates below zero; however, they have been reluctant in the past due to concerns over bank profits. Chief economist at Investec, Philip Shaw, stated that interest rate markets were pricing in a 60% chance of a 25 basis point cut to -.15% by June next year. This is an event that will induce volatility within the major GBP pairs, so traders should be aware of the timing of their trades this week ahead if they wish to trade the pound.

Friday, 7th August – Non-Farm Payrolls

Deborah Brix, the physician overseeing the White House Coronavirus response, told CNN that the United States had entered a "new phase" of the Coronavirus pandemic as outbreaks start to increase in rural and urban areas. She states the Pandemic has become "Extraordinarily Widespread." This conveys that the USA is not close to steering clear of the damages the Coronavirus face. Analysts predict a net increase in jobs of 4.8 million for the month of June.

Many important events this week ahead – traders should look out for volatility in the major pairs in the market.

Trade safe!

Anish Lal, an analyst here at Blackbull Markets have some excellent pointers on the GBP/USD pair for the week ahead. You can watch it here.

PBoC, Inflation and Jobless Claims - Week ahead

The markets continue to grapple with the immediate effects of the Coronavirus. The second wave in pockets of the world has forced cities to take active measures to control the virus. Melbourne, Australia has gone into a secondary lockdown while Florida and Los Angeles see cases surge, with the Mayor of Los Angeles stating that the city is “on the brink” and a Democratic representative from Florida reports the outbreak is “totally out of control.” Here is your week ahead

Monday, 20 July – Peoples Bank of China Interest Rate decision

PBoC's Interest Rate

China’s Central Bank, the Peoples Bank of China has been wary of cutting interest rates, even during the peak of the pandemic. Ma Jun, a PBOC adviser, stated in early April, “The PBOC doesn’t use its bullets all at once. China has plenty of room in monetary policy.” The PBOC has kept interest rates at 3.85%, after dropping it 30 basis points from 4.05% in April. However, forecasts and estimates expect the PBoC to keep rates as is at 3.85% this week ahead.

Tuesday, 21 July – Inflation rate YoY Bank of Japan

With 660 new cases of the Coronavirus yesterday, Japan has struggled to keep ahead of the virus after the world praised it for its lighter approach to restrictions. However, that approach, as seen similarly from Australia, has not bode well for the country. Japan has seen triple-digit daily increases for the whole month of July. This has caused consumption and spending to decrease dramatically. Analysts predict an inflation rate of 0.1%; however, there is a high chance that this may be pushed to the downside, which may put downward pressure on the JPY.

 Tuesday, 21 July – Reserve Bank of Australia minutes

Australia is continuing to grapple with the effects of the Coronavirus, with Melbourne being put back into lockdown and the state of Victoria imposing mandatory mask restrictions. With RBA minutes earlier in the year having a tone of optimism, likely, that tone will not continue here. The second lockdown is a massive blow to the country, socially and economically. The Trans-Tasman bubble between New Zealand and Australia has been delayed, with economic activity in the state of Victoria plummeting. We may see Aussie weakness against its New Zealand counterpart as Australia reels back their reopening.

 Thursday 21st July – Canada Consumer Price Index (CPI)

Canada continues to post double-digit daily Coronavirus cases as they, too, implemented a looser lockdown restriction like Japan and Australia.  We saw a drop in the CPI from March to April as citizens decreased their spending. We saw a slight increase in the Month of May, however, analysts expect to stabilize around 137 for the month of June.

Thursday 23 July, US Initial Jobless Claims

US Initial Jobless claims. Source: Bloomberg

With Initial Jobless Claims posting the smallest decline since March last week, the US jobs market is showing a slight rebound. However, we are all aware of the current situation with the Coronavirus cases in the US. Florida and Los Angeles are posting daily record numbers every week, while President Donald Trump focuses on reopening the economy and the US-China trade deals. I expect this number to slowly creep up as the full effects the second wave of the Coronavirus becomes evident. Analysts predict Jobless Claims to drop to 1.29m from 1.3m previously.

We have seen this mindset in the market, which discounts negative news and rallies on positive news. This is partially due to liquidity propping up many markets. Investors and traders must take this into account when placing trades.

Trade safe!

Trans-Tasman bubble a dream?

There have been talks for a Trans-Tasman bubble since the Coronavirus lockdowns in March. However, different approaches from New Zealand and Australia have made this reality more a far fetched dream.

Trans-Tasman bubble would greatly help both economies

Although both countries would benefit from the trans-Tasman bubble, New Zealand would arguably benefit greater due to 5.8% of GDP being attributable to Tourism. Over 180,000 individuals are employed due to tourism and make up about 7.5% of the workforce in New Zealand.

However, as much as a trans-Tasman bubble is encouraged, the difference in approaches has made it challenging to implement. With New Zealand digging their heels and imposing one of the strictest lockdowns in the world, while Australia gave their citizens relative freedom, only imposing social distancing guidelines. The contrasting methods have become evident – with Australia still making records in daily Coronavirus cases, while New Zealand consistently records single-digit case numbers. Victoria, Australia, reported 428 new Coronavirus cases on Friday, making it the state's largest daily increase since the pandemic.

This is on the back of the Prime Ministers' Scott Morison and Jacinda ADern opening up travel between the two countries. Scott Morison stated that "she [Jacinda Adern] raised the very issue [the bubble] with me, and we're progressing those discussions." However, he also stated that it is "going to be a little be moderated for what's happening in Victoria," insinuating a possible exclusion for citizens that live in Victoria. Melbourne, a major city in Victoria, recently hit 5000 Coronavirus cases as the city re-enters a second lockdown.

Trans-Tasman may move the needle in the markets

The AUD/NZD depreciated to parity in the middle of March as risk currencies dived – with the NZD showing some strength due to New Zealand's efficient suppression of the Coronavirus. However, the Australia dollar has since rebounded, trading at the 1.067 level. There may be an argument for the Australian dollar is slightly overvalued compared to the New Zealand dollar as New Zealand's economy has been restarting without any relative setbacks. However, as demand for commodities such as oil and iron rises across the world of which Australia is a major exporter, demand for the Australian dollar may increase, strengthening relative to the NZD.

AUS200 in Blue, NZX 50 in Red

However, the significant indices for Australia and New Zealand may show outperformance, rewarding New Zealand in their Coronavirus suppression. Since their March lows, the NZX 50 has outperformed the Australian 200 Index by 4%. If New Zealand continues to outperform with regards to the Coronavirus relative to Australia, we may see a good opportunity to shorten the ASX and go long the NZX.

If both countries took the same approach, I believe there would have been a trans-Tasman bubble sooner. Australian Tourism Industry Council Executive Director Simon Westway stated that "Australia needs to get back on its feet before Trans-Tasman bubble," and that Australia needs to open its domestic borders between states before opening up to New Zealand. Jacinda Adern took a stab at Australia's Coronavirus response, stating on video that "If Australia wants a whole country trans-Tasman bubble, we'll be waiting."