Markets

RBNZ Sinks the Kiwi, With Trump and the USD in Focus Later in the Day

Earlier in the Day:

Economic data through the Asian session was limited to July house price figures out of the UK and July inflation figures out of China, while the RBNZ released its rate statement, monetary policy statement and August interest rate decision ahead of the accompanying RBNZ press conference.

For the Kiwi Dollar , the RBNZ held rates unchanged at 1.75% that was in line with expectations, while the monetary policy statement and rate statement delivered a dovish tone to sink the Kiwi ahead of the RBNZ Governor Orr press conference.

Key messages from the statements included:

  • The official cash rate is expected to be kept at current levels for some time to come, the NZ economy experiencing a slowdown that is expected to be temporary, but could be more prolonged.
  • The next move could be up or down and unlikely to be until 2020, the RBNZ monitoring a number of risks that could force a rate cut should the risks materialize.
  • While economic growth has slowed, expectations are for growth to pick up over the remainder of this year and into next, supported by a weaker Kiwi and robust global growth.
  • The domestic economy continues to be supported by both monetary and fiscal policy, with planned spending by the government another positive for the economic outlook.
  • Inflationary pressures have been building, supported a by tightening labour market and build-up of capacity pressure, with wage growth outpacing consumer price growth.
  • Downside risks remain, with key threats including:
    • Higher than expected inflation driven by profit margin pressures forcing businesses to hike prices where possible, with profit margins likely to be challenged by rising wages and import costs.
    • Slower investment growth and / or government spending than originally planned.
    • The ever present risk of a trade war impacting the global economy and demand for NZ goods.

The Kiwi Dollar moved from $0.67469 to $0.67143 on release of the monetary policy statement, while moving from $0.6705 to $0.67097 during the RBNZ press conference that delivered few surprises, the kiwi managing to recover from sub-$0.67 lows.

At the time of writing, the Kiwi Dollar was down 1.16% to $0.6669, with the markets continuing to respond to the latest policy stance, following a brief reprieve.

Out of China , July inflation figures impressed, with the annual rate of inflation accelerating from 1.9% to 2.1%, coming in ahead of a forecasted 2%, with consumer prices rising by 0.3%, month-on-month, more than reversing a 0.1% fall in June, while also coming ahead of forecasts.

July's producer price index held its ground, with input prices rising by 4.6%, easing from June's 4.7% while coming in ahead of a forecasted 4.4%.

Elsewhere the Aussie Dollar was down 0.05% to $0.7427, while the Japanese Yen was up 0.15% to ¥110.81 , with no material stats released through the day to provide direction, the pair responding to trade war chatter and general market risk appetite through the session.

While there were no major stats out of Japan, Japan machinery orders slumped in June, with orders sliding by a whopping 8.3% following May's 3.7% fall, the slide far worse than a forecasted 1.3% decline.

In the equity markets, it was a mixed start to the day. The Nikkei and Hang Seng down 0.51% and 0.33% respectively, a stronger Yen and disappointing stats hitting the Nikkei, while the Hang Seng saw sliding oil prices on Wednesday weigh in the early hours.

By contrast, the CSI300 and ASX200 were in positive territory early on, with gains of 0.01% and 0.25% respectively, the CSI300 likely to face more pressure as the session goes on, trade war tariffs never a good thing for investors.

The Day Ahead:

For the EUR , there are no material stats scheduled for release through the day, leaving the EUR in the hands of market risk appetite and response to the release of the ECB Economic Bulletin due out in the late morning.

Focus will be on key drivers from a monetary policy perspective, including wage growth, outlook towards domestic consumption, inflation and growth expectations, any concerns over the U.S - China trade war could weigh, though sentiment towards inflation will likely have the greatest influence on the day.

At the time of writing, the EUR was down 0.02% to $1.1608.

For the Pound , it's another quiet day on the data front, with sentiment towards Brexit keeping the Pound in check ahead of tomorrow's stats, talks of the EU threatening to remove Brexit talks from the September EU Summit, having hit the Pound mid-week.

Earlier in the day, the July RICS House Price Balance rose an upwardly revised 3% to 4%, which was in line with forecasts.

The Pound moved from $1.28833 to $1.28821 upon release of the figures, before easing to $1.2866 at the time of writing, down 0.12% for the morning, pressure over Brexit continuing to weigh.

Across the Pond , stats through the day include the weekly jobless claims figures along with July wholesale inflation figures.

Following the softer than expected July nonfarm payroll numbers, we can expect sensitivity to the weekly jobless claims numbers to increase, though wholesale inflation will remain the area of focus, any softer inflationary pressures, in line with or worse than forecast, likely to weigh on the Dollar.

Outside of the data, FOMC member Evans is scheduled to speak, any hawkish commentary expected to provide some support, though the markets are likely to be more interested in dovish commentary, with direction for the Dollar likely to boil down to Oval Office chatter should the U.S President crank up the trade war rhetoric.

At the time of writing, the Dollar Spot Index was up 0.04% to 95.133, noise from the Oval Office and inflation figures in focus through the day.

For the Loonie , key stats through the day are limited to July housing sector data that are unlikely to bare any material influence on the BoC and the Loonie ahead of tomorrow's July employment figures.

Outside of the stats, updates from a Wednesday gathering of Canadian officials' discussion NAFTA could provide further direction, particularly if the U.S administration looks to ruffle Canada's feathers ahead of talks resuming.

At the time of writing, the Loonie was up 0.02% to C$1.3020.

This article was originally posted on FX Empire

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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