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US and China ramp up the rhetoric over Hong Kong

Published October 17, 2019

By Nicholas Cork

It was an active session for the Antipodeans, buffeted by NZ data, Central Bank talk, US/CHINA rumblings and escalating issues in Hong Kong. The NZD CPI came in better than expected giving some support to both currencies before the RBNZ Deputy Governor echoed the RBA, saying that lower rates may still be needed to achieve the banks inflation and employment goals, a day after the IMF already flagged the obvious in that lowering interest rates by Central Banks to combat low inflation is currently limited in its effectiveness as recent history has shown.

The goodwill from the recent ‘partial Trade deal’ was well and truly offset when news broke that the US House gave support to pro-democracy protesters in Hong Kong by passing a bill that would require an annual review of whether the city is sufficiently autonomous from Beijing to justify its special trading status under U.S. law. The bill provides for sanctions against officials “responsible for undermining fundamental freedoms and autonomy in Hong Kong.” The response from China was swift from the National People’s Congress representative issuing the following statement…  “We strongly urge the US Congress and some American politicians to immediately stop interfering in Hong Kong affairs … halt further deliberation of the bill, and do more to benefit the long-term development and fundamental interests of China and the US.” Following this Hong Kong’s chief executive Carrie Lam, in her first address to parliament in a few months, was heckled and jeered by  MPs chanting “five demands, not one less”. Twice she tried to start the address before exiting the chamber quickly. These events added further pressure to both the AUD and NZD late in our day before both recovering some ground overnight, also aided by a weaker USD as US Retail Sales came in below expectations. Also overnight the leader of one of HK’s pro-democracy groups, the Civil Human Rights Front, was reportedly set upon by a group of five hammer-wielding men.

Capping off an eventful 24 hours, voting FOMC member James Bullard stepped into the trade fray limelight whilst in London, giving some very forthright comments to reporters.  “U.S. leadership towards trade liberalization has been sidelined. Now it’s going to be hard to see who’s going to be the leader on trade liberalization. The markets have had this idea that trade would be an issue but a resolution was just around the corner. That is what I am pushing back on. We have opened Pandora’s box. Trade issues are very hard to resolve. They are very long and very involved — over a long period of time. Most countries really don’t want to get to a solution because they are kind of mercantilistic at heart and have pressures on them to protect certain industries,” he said.

AUD opens today around 0.6750 after roughly trading 0.6720/0.6770 yesterday. Today’s highlight is Australia’s unemployment release with expectations of 15,000 jobs created and an unemployment rate of 5.3%.