As expected the RBNZ lowered its official cash rate by 25bps to 3%. However, the decision didn’t have the expect results on the New Zealand dollar. The Kiwi appreciated more than 1% against the euro, the greenback and the Australian dollar. The main reasons for this upside move is that Graeme Wheeler released a comment less dovish than expected by the market; in addition, interest rates are still relatively high compared to developed countries such as the US or Australia. However, RBNZ’s Governor maintained that “further depreciation is necessary given the weakness in export commodity prices” and we therefore expect the RBNZ to continue supporting the Kiwi economy by providing further rate throughout the remaining of the year. We anticipate the recent correction to be short lived.
In the Asian session, Chinese shares are trading higher with the Shanghai Composite up 2.33% while the tech-heavy SZSE Composite adds 2.71%. However, it is hard to say whether this is a legitimate recovery of if the PBoC is just pumping more money into the stock market. In Hong Kong, the Hang Seng is up 0.58% while in Australia the S&P/ASX 200 lost -0.43%.
In South Korea, second quarter GDP preliminary estimates fell short of expectations and printed at 2.2%y/y versus 2.3% median forecast as private consumption collapse while on a quarter-over-quarter basis, the figure came in at 0.3%q/q verse 0.4% consensus. The South Korean won dropped 0.97% against the greenback to 1164.75 and is trying to turn the 1162.90 resistance into a support. On the upside, the next strong resistance can be found at 1185.45 while on the downside a support area can be found around 1123.
In Europe, Greece is getting one step closer to access the €86bn of fresh bailout funds as the parliament passes second reform bill. A deal should therefore be wrapped up by August. EUR/USD is slowly recovering from last week’s sell-off and is currently taking a breather around 1.0935. On the upside, the euro should find resistance around 1.1049 (Fib 38.2% on June-July debasement). On the equity front, European futures are upbeat this morning with Xetra DAX up 0.66%, CAC 40 up 0.55%, FTSE 100 up 0.60% and the SMI up 0.60%.
In Brazil, July IPCA-15 rose 0.59%m/m versus 0.61% median forecast while on a yearly basis, inflation accelerated from 8.80%y/y in the previous month to 9.25% (9.28% consensus) in July. As expected Brazil’s government proposed to reduce the fiscal primary surplus target to 0.15% of GDP from 1.1%. It is lower than our anticipation of between 0.4% and 0.6% of GDP but we believe that Joaquim Levy wants to set a target that is both achievable and realistic given the challenge facing the government and not a figure that would just please investors. As a result, USD/BRL erased previous losses and is above the 3.22 level.
Today traders will be watching unemployment rate and PPI from Sweden; retail sales from UK; interest rate decision from Turkey; unemployment rate from Brazil; retail sales from Canada; initial jobless claims, Bloomberg consumer comfort and consumer confidence and leading index from the US.
Currency Tech
EUR/USD
R 2: 1.1436
R 1: 1.1278
CURRENT: 1.0962
S 1: 1.0819
S 2: 1.0660
GBP/USD
R 2: 1.5930
R 1: 1.5803
CURRENT: 1.5648
S 1: 1.5330
S 2: 1.5171
USD/JPY
R 2: 135.15
R 1: 125.86
CURRENT: 123.79
S 1: 120.41
S 2: 118.89
USD/CHF
R 2: 1.0129
R 1: 0.9719
CURRENT: 0.9555
S 1: 0.9151
S 2: 0.9072