• Michael Moran , Senior Currency Strategist at ACY Securities


• 18.08.2021 09:45 am
trading

Kiwi Slides as RBNZ Faces Rate Hike Dilemma

Summary: Risk-off put a bid under the Dollar despite a big miss in US Retail Sales which was below economist’s expectations. The US Commerce Department reported that sales in July at retailers dropped to -1.1%, much lower than median estimates for a + 0.23% gain. Fed officials continued to focus on the jobs market with many joining the hawkish camp as they prepare to announce an imminent tapering. A favoured gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) soared 0.56% to 93.14 (92.62). The benchmark US 10-year Treasury bond yield recovered to finish unchanged at 1.27% after an initial fall to 1.24%. Risk FX leader the Australian Dollar tumbled 1.16% against the Greenback to 0.7253 its lowest finish this year (0.7337 yesterday). Minutes released yesterday following the latest RBA meeting were judged as dovish. The Kiwi (NZD/USD) dropped 1.4% against the surging Greenback to 0.6915 from its 0.7022 open yesterday. The Reserve Bank of New Zealand is widely expected to hike its Official Cash Rate by 0.25% to 0.50% at the conclusion of their policy meeting today (1 pm Sydney). Yesterday the New Zealand government announced a snap 3-day nationwide lockdown amidst a new case of the Delta variant. The Euro slid to 1.1710 (1.1775) while the British Pound lost 0.76% to 1.3735 from 1.3837 against the resurgent Greenback. Against the Japanese Yen, the Dollar edged higher to 109.60 (109.25). The Dollar broke higher against China’s Offshore Yuan to 6.4920 (6.4760). Against the Singapore Dollar, the Greenback (USD/SGD) finished 0.5% higher to 1.3628 (1.3560). Wall Street stocks retreated. The Dow slid 0.90% to 35,290 (35,610). The S&P 500 lost 0.8% to 4,442 from 4,480 yesterday.

Other data released yesterday saw UK Average Earnings climb to 8.8% beating forecasts at 8.7%. Britain’s Unemployment Rate eased to 4.7% from a previous 4.8%, bettering estimates at 4.8%. The Eurozone Flash Q2 GDP Estimate matched expectations with a 2.0% print. Canada’s Housing Starts slid to 272,000 from 281,200 units. US July Core Retail Sales fell (m/m) to -0.4% missing median expectations for a -0.35% drop, and a previous +0.6%. US Industrial Production in July rose 0.9% from June’s downward revised 0.2%, beating forecasts at 0.5%. US July Capacity Utilisation Rate in July was up at 76.1%, beating expectations of 75.7%.

- AUD/USD – risk-aversion and dovish RBA minutes forced the Aussie Battler lower to finish at 0.7254 from its 0.7337 open yesterday. Minutes of the RBA’s latest meeting revealed the concern of policy makers on the country’s rising Delta variant of Covid-19. AUD/USD hit an overnight and 2021 low at 0.7243 before settling.

- NZD/USD – The Kiwi was also a victim of the market’s risk-off stance even as New Zealand entered its first day of a snap nationwide lockdown. NZD/USD slid to 0.6915 from 0.7022 yesterday. New Zealand Prime Minister announced the lockdown due to a rise in the Delta variant of Covid-19 in Auckland, the country’s biggest city. The RBNZ is widely expected to raise its Official Cash Rate to 0.5% from 0.25% at the conclusion of its meeting today (12 noon, Sydney today, 18 August).

- EUR/USD – The shared currency broke lower to finish at 1.1710 from 1.1775 yesterday. Broad-based US Dollar strength and the market’s risk-off stance weighed on the EUR/USD pair. The Eurozone releases its Inflation report later today. Overnight low for the Euro was at 1.1708.

- GBP/USD – Sterling was pounded lower to 1.3735 from 1.3837 yesterday, down 0.77% despite an improvement in Britain’s Unemployment rate. UK Jobless rate in July eased to 4.7% from 4.8%, beating median expectations at 4.8%. The UK releases its inflation numbers today.

On the Lookout: Despite the miss in US Retail Sales, US Industrial Production saw output at American factories surge last month. Data released today will see US July Building Permits and Housing Starts. Investors and traders will be focussed on the release of the release of the latest FOMC meeting minutes (19 August, at 4 am Sydney).

ACY Finlogix data just released earlier today saw New Zealand’s Q2 PPI Output rise to 2.6% from a previous 1.2%, beating expectations for a +0.9% rise. NZ PPI Input climbed to 3.0% from Q1’s 2.1%, higher than forecasts at 0.9%. Japan just released its July Core Machinery Orders (m/m fell to -1.5%, beating estimates at -2.8% and a previous 7.8% - Finlogix), Japanese July Trade Balance (f/c +JPY 202.3 billion from previous +JPY 393.2 billion). Australia releases its Westpac July Leading Index (m/m no forecasts, previous was -0.07%), Australian Q2 Wage Price Index (q/q f/c 0.6% from 1.5%). The RBNZ is expected to hike its OCR to 0.5% from 0.25% (12 noon Sydney).

The UK starts off European data with its Headline CPI report for July (m/m f/c 0.3% from 0.5%, y/y f/c 2.2% from 2.3%) UK Core CPI (m/m f/c 0.1% from 0.5%, y/y f/c 2.2% from 2.3%). The Eurozone releases its July Final CPI report (m/m f/c 0.3% from 0.3%, y/y f/c 2.2% from 1.9% - Finlogix); Eurozone July Final Core CPI (y/y f/c 0.7% from 0.9%). Canada releases its July Headline CPI (y/y f/c 3.4% from 3.1%); Canadian Core CPI (y/y no forecast given, previous was 2.7%). The US rounds up the day’s reports with its July Building Permits (f/c 1.61 million units from previous 1.594 million) and July Housing Starts (f/c 1.6 million from 1.643 million).

Trading Perspective: The combination of risk-off and central bank divergence has put a bid under the US Dollar. More hawkish rhetoric from Fed officials has emerged.  Political uncertainty after Afghanistan’s collapse has added support to the Greenback. Despite the slump in US Retail Sales in July, Federal Reserve officials are more focussed on the employment outlook. Fed Chair Jerome Powell said that it remained unclear whether the Delta spread will have a noticeable impact on the economy, with many companies able to adapt, according to a Reuters report. The US 10-year bond yield finished flat after an initial fall despite the drop in Retail Sales. Meantime, the ongoing spread of the Delta Covid-19 variant continues to muddy the economic picture. Data release have been mixed so traders will focus on today’s reports. Tomorrow morning’s release of the FOMC meeting minutes will be huge.

- AUD/USD – The Australian Dollar wore the brunt of the risk-off stance, tumbling 1.16% to its 0.7253 New York close. Immediate support for the Aussie lies at 0.7240 (overnight low 0.7243) followed by 0.7210 and 0.7190 (strong). Immediate resistance can be found at 0.7280 and 0.7320. Look for the Aussie to continue to trade heavy in a likely range of 0.7220-0.7290. Look to sell on rallies.

- NZD/USD – Expect choppy trade in the Kiwi today. The RBNZ is widely forecast to hike its Official Cash Rate to 0.5% from 0.25%. New Zealand went into a snap lockdown yesterday as the country struggled to contain it’s rise in of Delta variant cases. If the RBNZ do not hike rates, the Kiwi could plummet. If the RBNZ hike as expected, NZD/USD should stabilise but remain under pressure. Only a larger than forecast hike in the OCR will lift the Kiwi. Immediate resistance lies at 0.6950 followed by 0.6980. Immediate support can be found at 0.6890 and 0.6860. Look for a choppy trade today between 0.6880-0.6980.

(Source: Finlogix.com)

- EUR/USD – Slip sliding away. The Euro slid 0.58% to 1.1710 from its 1.1775 open yesterday. Overnight low traded was 1.1708. Immediate support can be found at 1.1700 followed by 1.1670. Immediate resistance lies at 1.1740 and 1.1780. Eurozone July inflation data released today is forecast to remain steady. The focus will be on the FOMC meeting minutes which are released near the close of trade in the US tomorrow. Likely range today 1.1685-1.1785.

- USD/JPY – The Dollar managed to rebound against the Japanese Yen to 109.60 from 109.25 yesterday despite the risk-off stance. US bond yields were steady with the 10-year unchanged at 1.27%. USD/JPY hit an overnight low at 109.12. Immediate support can be found at 109.10. The next support level is found at 108.90. Immediate resistance lies at 109.80 followed by 110.10. Look for the USD/JPY to consolidate in a likely range today between 109.20-109.80. Prefer to buy USD dips.

Happy Wednesday and trading all.