Kiwi Tumbles, Maintains Bearish Outlook
ActionForex | Aug 19, 2014 02:27AM ET
US equities surged sharply over night on optimism that there was progress in solving the Ukraine tensions. DIJA rose 175.83 pts, or 1.06% to close at 16838.71 while S&P 500 rose 16.68 pts, or 0.85% to close at 1971.74. Asian equities followed with Nikkei 225 up over 0.9% at the time of writing. Russia and Ukraine eventually agreed to find ways of cease fire in eastern Ukraine. German Foreign Minister Frank-Walter Steinmeier has brought together Ukraine's Pavlo Klimkin of Ukraine and Russia's Sergei Lavrov for a talk which would also be attended by France's Laurent Fabius. According to Steinmeier, the meeting is "all about finding a roadmap towards a sustainable cease fire and a framework for effective border controls. Only in this way can eastern Ukraine calm down and Kiev continue a national dialogue that appropriately involves the people in the east". Although the progress of the discussion appeared to be slow, the parties pledged to focus on ending the violence in Ukraine.
The latest development in the Iraq conflict is that Iraqi and Kurdish forces, with the help of US airstrikes, recaptured the country's biggest dam which had given the militants control over power and vital water supplies. According to the White House, the importance of seizing the dam is that, the failure to do so "could threaten the lives of large numbers of civilians, threaten U.S. personnel and facilities - including the U.S. Embassy in Baghdad - and prevent the Iraqi government from providing critical services to the Iraqi populace". The success of the operation, as US President Obama indicated, "demonstrates that Iraqi and Kurdish forces are capable of working together in taking the fight to ISIS (Islamic State), and if they continue to do so they will have the strong support of the United States of America".
The RBA in its just-released minutes for the August meeting unveiled the reason for keeping the cash rate unchanged. Policymakers noted significant uncertainties around the economic outlook, suggesting there was a "notable degree" of spare capacity in the labor market. As mentioned in the minutes, "members noted that there was inevitably a significant degree of uncertainty about the outlook, given the number of forces working in different directions".
The New Zealand dollar tumbled sharply today after PPI data. PPI inputs dropped -1.0% qoq in Q2 versus expectation of 0.7% qoq. PPI outputs dropped -0.5% qoq versus expectation of 0.8% qoq. RBNZ 2 year inflation expectation is 2.2% in Q3 versus 2.4% in Q2. The NZD/USD recovered ahead of 0.8401 key support level (38.2% retracement of 0.7682 to 0.8835 at 0.8395). But subsequent rise was limited well below 0.8533 near term resistance and thus, maintained bearish outlook. Decisive break of 0.8401 will extend the medium term decline from 0.8835 towards 61.8% retracement at 0.8122. Though, break of 0.8533 will bring strong rebound before extending the down trend.
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Looking ahead, inflation data will be a major focus today. UK will release CPI, RPI and PPI. Sterling is the weakest currency this month so far. BoE governor Carney's comment over the weekend lifted the pound mildly but there was no solid momentum for recovery yet. CPI miss today, or dovish BoE minutes to be released later this week could send Sterling further south. US will release CPI and new residential construction.
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