Investors in Asia largely brushed off the ongoing trade fight between China and the United States, with Shanghai’s blue-chip stocks climbing 2.4%, a move supported by the tech and financial sectors. Solid economic data and possible government intervention through monetary & fiscal policies encouraged investors to take some risk on Thursday. Data on Wednesday showed that China’s exports have not yet been impacted by U.S. tariffs rising 12.2% in July from last year. The Producer Price Index cooled slightly in July, coming at 4.6% from 4.7% in June and suggesting that policymakers may still have further room to loosen monetary policy. However, if President Trump goes ahead with his proposed tariffs of 25% on $200 billion worth of Chinese imports, these gains will be rapidly wiped off.
RBNZ pressures the New Zealand dollar
Currency markets were in focus during early morning trade with the New Zealand Dollar tumbling more than 1% against the U.S. dollar. NZD/USD fell to its lowest level since March 2016 after the Reserve Bank of New Zealand surprised traders by announcing that it is committed to keeping interest rates at record lows through 2020. The central bank also downgraded its 2019 GDP forecast to 2.6% from 3.1%. Given the slowdown in economic activity and the ongoing global trade dispute, the RBNZ is sending a message that further easing may be possible in the months ahead. This is likely to keep the NZD under pressure and test new lows below 0.65 by year-end.
Ruble falls on sanctions
The period of sideways trading which lasted for four months seems to be over for the Ruble. The Russian currency fell more than 3.3% on Wednesday as Trump’s administration proposed fresh sanctions following the poisoning of a former Russian agent in the U.K. The decline in oil prices also helped to intensify the fall in the Ruble and with such uncertainty, investors will need to price in further risk premium on Russian assets. Investors will likely ignore the Russian economic fundamentals in the weeks ahead and focus on political developments. The Ruble may find some support around the 67 level, but a break above will lead to further selling pressure.