RBNZ Keeps Rate Unchanged, Inflation Numbers In Focus
During the early hours of the Asian morning today, the main event on the economic calendar was the RBNZ interest rate decision and the accompanying monetary policy statement. The UK delivered its inflation numbers. The EU and Canada are the next ones to bring their CPIs to the table.
During the early hours of the Asian morning today, the main event on the economic calendar was the RBNZ interest rate decision and the accompanying monetary policy statement. As discussed in our Strategic Report, delivered every Monday, at its latest meeting, this Bank kept interest rates unchanged at +0.25%, and although we have been expecting an optimistic language, the statement was even more hawkish than what we (and apparently many other market participant) have been anticipating. Officials announced that they will end their Large-Scale Asset Purchase (LSAP) program the week after the meeting, while data since then have been on the bright side, with the better-than-expected employment report for Q2 cementing expectations over a rate hike at this gathering. During today’s monetary policy statement, the Bank stated that:
“Global monetary and fiscal settings remain at accommodative levels, supporting international spending and investment. Rising vaccination rates across many countries have provided economic impetus. The rise in activity has continued to support demand and prices for New Zealand’s export commodities.
However, the need to reinstate COVID-19 containment measures in some regions highlights the serious health and economic risks posed by the virus. Persistent and elevated health risks are promoting ongoing global supply chain disruptions, and are acting to constrain productive capacity and prolong inflationary pressures. Today’s re-introduction of Level 4 restrictions to activity across New Zealand is a stark example of how unpredictable and disruptive the virus is proving to be.
The Committee noted that the New Zealand economy had rebounded more strongly than most countries, with less domestic disruption caused by COVID-19 to date. Employment is currently at or above its maximum sustainable level, and consumer price inflation expectations remain anchored near 2 percent, the midpoint of the target range.“
Initially, we saw NZD falling against most of its major counterparts. However, when the dust settled, traders took the RBNZ news as a positive and helped lift the currency back up. That said, NZD might still remain vulnerable to the overall market sentiment and if it starts deteriorating, then we could see the New Zealand currency losing ground further against some of the safe havens, like CHF and JPY.
NZD/JPY — Technical Outlook
NZD/JPY continues to trade below a short-term downside resistance line taken from the high of August 11th. That said, after finding support near the 75.20 hurdle this morning, the pair rebounded and is now trying to go for a larger recovery. If the rate stays somewhere below that downside line, we will continue aiming lower.
A small push higher could bring the pair to the 76.04 zone, or to the aforementioned downside line, which if continues to provide resistance, may attract the sellers into the field again, possibly clearing the way towards lower areas. NZD/JPY may slide to the 75.37 obstacle, or to the current lowest point of August, at 75.20. Slightly below lies another possible support zone, at 75.00, which marks the lowest point of February 2021.
Alternatively, if the previously discussed downside line breaks and the rate climbs above the 76.53 hurdle, marked by the low of August 16th, that might help invite more buyers into the arena. If so, NZD/JPY could travel to the 76.84 obstacle, or even to the 77.10 territory, marked by the low of August 13th. If the buyeing doesn’t stop there, the next possible target may be at 77.39, marked by the high of August 13th.
Also, during the Asian morning, Japan and Australia delivered some of its economic data sets. Japan released its trade balance, which showed a number, twice the initially expected figure, coming out at 441bln, meaning that that the country continues to export more than it imports. Australia delivered their wage price index, both on a QoQ and YoY basis, which showed up below expectations. The QoQ reading was at +1.7% and the YoY one was at +0.4%.
UK, EU and Canada Inflation
Traders, especially those who trade GBP, were busy during the European morning with the data from the UK. The country released the long-awaited inflation numbers. The initial forecasts for the core and headline YoY figures for the month of July were on the lower side, as they were believed to fall below the previous readings. The actual numbers came out even lower, failing to meat their initial expectations. The core YoY CPI showed up at +1.9%, when the forecast was for +2.2%. The Headline YoY CPI came up at +2.0%, when the expectation was for a +2.3%. The Bank of England’s current inflation target sits at 2.0%. Initially, the British pound reacted negatively to the news, however stabilized slightly after a while.
EUR/GBP — Technical Outlook
After reversing north on August 10th, EUR/GBP continues to slowly grind higher, while balancing above a short-term tentative upside support line taken from the low of August 11th. The rate is currently sitting near the 200 EMA and slightly below yesterday’s high, at 0.8536. In order to consider higher areas, we would prefer to wait for a break above that hurdle first, hence our somewhat positive approach for now.
If, eventually, the pair makes a strong move higher and breaks above the 0.8536 barrier, this will confirm a forthcoming higher high, potentially setting the stage for further advances. EUR/GBP could rise to the 0.8558 hurdle, a break of which may lead the pair to the 0.8584 level, which is the high of July 23rd.
On the downside, if the rate breaks below the aforementioned upside line and then falls below the 0.8494 hurdle, marked by an intraday swing low of August 16th, that may open the door for lower areas. EUR/GBP could then drift to the 0.8484 obstacle, or even to the 0.8460 zone, marked by the low of August 12th. If the slide continues, the next possible target might be at 0.8450, which is the lowest point of August.
The EU is also expected to release their bot core and headline CPI numbers for July on a MoM and YoY basis. The initial forecasts are the same as previous, where the core YoY figure is believed to show up at +0.7% and the headline one is expected to be at +2.2%. ECB’s current inflation target is set at “below but close to 2%”, according to the Bank.
Later on in the day, Canada will be next to release their inflation numbers for July. The only forecasts available are for the headline MoM and YoY readings. The MoM number is expected to have remained the same as previous, at +0.3%, but the YoY one is forecasted to have risen slightly, going from +3.1% to +3.4%. If the YoY figure comes out as expected, this would be above BoC’s inflation target, which is in the range of 1 to 3 per cent. If the reading comes out above 3%, then this would be above the Bank’s target for the 4th month in a row. But there is doubt that the Bank may consider these higher readings as a huge concern and the reason to raise rates earlier.
As For The Rest Of Today’s Events
From the US, we get the minutes from the latest FOMC gathering, but bearing in mind that we’ve heard the views of several policymakers since then, as well as that we will get to hear from Chief Powell this week, we will treat this release as outdated this time around. Market participants are likely to hold on to the positions adjusted in the aftermath of Powell’s speech on Tuesday. As for the US data, we have building permits and housing starts, both for July. Building permits are expected to have increased somewhat, but housing starts are anticipated to have sightly declined.
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