NZD: NZD/USD Continues Sell-Off, Makes Fresh Lows, Focus On China

Oil prices fell sharply on disappointment in China’s stimulus announcement and the rally in the US dollar (BBDXY +0.6%). Markets will also be concerned that China’s October CPI/PPI released on Saturday printed lower than expected. Uncertainty over what the Trump administration will mean for oil markets as well as over the outlook for OPEC production are helping to keep crude in a range. 

• WTI fell 2.7% to $70.43/bbl to still be 1.7% higher on the week, which is seen as corrective. It fell to a low of $70.08 before recovering somewhat. Initial support is at $66.72 and resistance at $74.35.
• Brent is down 2.3% to $73.90/bbl to be up 1.5% last week. It trended lower over the day to $73.54. Friday’s sell off reinforces the bearish theme. Initial support is at $70.28 with resistance at $76.24.
• Former US Commerce Secretary Ross said President-elect Trump will introduce tariffs but there will be exemptions for certain sectors including Canadian oil and gas, according to Bloomberg. The US oil sector is hoping promises for deregulation in the sector will be implemented.
• The US NHC has downgraded Rafael to a post-tropical remnant low but 490.2kbd or 28% of oil production in the US Gulf of Mexico had been shut in, according to Bloomberg.
• 2.4mn barrels of oil were bought for the US SPR for delivery in April/May. It was seeking 3mn.  

Goldman Sachs: "USD: Elections have consequences. Our US economists expect tariffs to feature prominently in the new Trump Administration, coupled with modest additional tax cuts, more federal spending, and a light touch on regulation. Our European economists downgraded their GDP forecasts across the region in anticipation of higher uncertainty and other spillovers. The policy proposals on offer would raise the cost of US imports, lower the cost of doing business domestically, and weigh on foreign activity levels. We believe this will have direct and powerful implications for the Dollar on a broad basis. We are not persuaded by the arguments that President Trump might be able to engineer a weaker Dollar or that the full effect is already priced in; we attribute the retracement this week to lingering uncertainty about the policy path ahead (against our economists’ more robust tariff expectations) and short-term trading around the event, with some clear signs of increased profit-taking in carry-negative currency pairs. However, even with tariffs on the agenda, Dollar strength is far from guaranteed. While a ‘currency pact’ is not feasible, in our view, a strong policy response abroad could mitigate or even dominate the effect of tariff threats. Already China’s ongoing fiscal stimulus package has helped offset some of the potential impact, and Germany’s evolving fiscal debate bears watching. We will incorporate our estimate of the foreign exchange market impact of the expected policy changes into our forecasts in our 2025 Outlook next week."