It has been a quiet start to the week with mostly microscopic price changes across bonds, equities and currencies. However, most notably, the NZD has started the week on the back foot as focus turns to Thursday’s Monetary Policy Statement.
While most major currency changes are within plus or minus 0.3% against the USD versus Friday’s close, the NZD is down 0.7% to 0.7360, its lowest level in over two weeks There was no particular trigger for the fall, beginning in the early evening and showing a steady decline. Earlier in the day, the RBNZ survey of inflation expectations showed a modest dip, but that was no surprise, following the fall in actual inflation. The fall likely reflects traders reducing (extreme) net long positions ahead of the MPS, which isn’t expected to be supportive to the NZD, with inflation tracking lower than the RBNZ projected back in May.
The NZD is now a full two cents lower from the late-July peak but we suspect further downside lies ahead, with that view possibly supported by a well-overdue recovery in the USD after months of broadly-based weakness. It would help if US CPI data on Friday can break the run of negative surprises, following hot on the heels of last week’s strong employment report.
The USD has managed to sustain last Friday’s post-employment gains and is flat on the various indices. The Fed’s resident uber-dove Bullard gave a speech calling for steady rates, as inflation surprised to the downside and he suggested there was little relationship between the unemployment rate and inflation. He later told reporters that he’s ready to start balance sheet adjustment in September. His comments had little impact on the market, and neither did fellow-dove Kashkari, who highlighted the shortfall of inflation relative to target.
Other commodity currencies are down slightly, but nothing like the fall in the NZD, with the AUD down less than 0.2% and the CAD down 0.3%. Being the standout underperformer, the NZD is down on all the crosses. NZD/AUD has traded sub-0.93 this morning.
German industrial production unexpectedly slipped in June but this had little impact on the market, as it followed strong factory orders data last week. EUR has nudged up a little and sits just under the 1.18 mark, taking NZD/EUR down to 0.6240.
In the world of currencies, the only other thing worth noting is that Bitcoin is up 18% to a record high. In a low vol world it’s handy to know that not everything is trading in tight ranges and there are always trading opportunities out there.
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