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What traders are talking about:
RBNZ cuts, Kiwi $ rallies
The Reserve Bank of New Zealand cut its OCR from 2.25 % to 2.00 %, as expected by the market. The rate cut was fully priced in, so the focus switched to the RBNZ statement, which wasn’t very dovish. The main worries for the central bank, as highlighted in their statement, are persistently low inflation and a further decline in inflation expectations, as well as the stubbornly high Kiwi Dollar.
RBNZ Governor Wheeler said that the bank has limited influence over the NZD, but that it wants to take pressure off the currency with lower rates. RBNZ Assistant Governor McDermott, who spoke shortly after Wheeler, said that central bank projections show one more cut likely and that the high exchange rate was a key concern. He stated that if the NZD will be higher than the RBNZ forecast, there is risk of more rate cuts coming.
The market clearly expected a more dovish statement to accompany a rate cut, hence the rally in NZD/USD after the release. It rallied from 0.7180 to a high of 0.7338 within the first few minutes, but gave up some of its gains during the APAC session as the comments from Wheeler and McDermott led to some position covering from NZD longs.
Analyst reactions
ANZ:
The OCR was cut but it was not enough to satisfy the market, with the NZD up and rates selling off. Expectations were growing prior that we could see something substantial, but what we got was an entirely balanced and appropriate response in our view. The bill track hints at 1 to 2 more cuts, although alternative scenarios show the risk is for more.
BNZ:
- There will be at least one more rate cut;
- The balance of risk is for even more;
- The cash rate is going to be at least as low as it is now for a long time;
- Inflation is likely to continue surprising to the downside in the near term; and
- Only when the rest of the world plays ball will the NZD wilt.
Nomura:
The NZD has appreciated by almost 1.0% despite the cut, as it seems that some market participants may have been expecting that the RBNZ would surprise and cut by 50bp. Moreover, while the central bank has signalled further cuts, it is only likely to deter the strong carry trade flow into the currency and is likely to continue to appreciate in the short term.
Choppy price action in Aussie Dollar
AUD/USD rallied from 0.7695 to 0.7760 (fresh 3-month high) following the RBNZ statement, but quickly retraced all of its gains and tumbled back to 0.7690. Pressure was also coming from AUD/NZD, which had a sharp sell-off post-RBNZ. Banks report that the market is still relatively long AUD/NZD, so there could be more pain ahead if the NZD can keep up its momentum.
Singapore GDP data disappoints
Singapore's economy grew only 0.3 % quarter-on-quarter vs. an expected 0.8 % print. The year-on-year figure for Q2 arrived at 2.1 %, also slightly below expectations (2.2 %). USD/SGD rallied from 1.3390 to 1.3445 and is up 0.20 % on the day.
PBoC sets USD/CNY fix at 6.6255
China's central bank allowed the CNY/USD to appreciate after the US Dollar came under broad pressure in the past few trading sessions. It put today's USD/CNY reference rate at 6.6255 vs. 6.6530 yesterday.
Australian inflation expectations decline
The Melbourne Institute released their latest inflation expectations data and it arrived at 3.5 %, slightly lower than last month's print (3.7 %).
What the Charts are saying:
NZD/USD – short-term technical outlook remains bullish. Initial resistance can be expected at the post-RBNZ high at 0.7340, but the next major obstacle lies at 0.7750.
AUD/NZD has been consolidating in the past few weeks and the RSI has a neutral reading. A break back below 1.05 would likely accelerate downside momentum and lead to a test of the 1.0310 level, which acted as key support in early July. To the topside, resistance is noted at 1.0770 and then 1.0970.
Economic Calendar:
- 07:45 BST - French CPI
- 09:00 BST - Italian CPI
- 13:30 BST - US Initial Jobless Claims
- 23:45 BST - New Zealand Retail Sales
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