Daily Forex News

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RBNZ survey of Expectations, NZD

The expectations form RBNZ ‘s latest survey shows inflation over coming years will remain high. The trend is seen higher in recent quarters looks like arrested and the expectations easing at some of the key medium-term horizons.

Lets look at the details, expectations for inflation one year ahead is consistent at 4.9%. Expectations at this short horizon will follow actual inflation closely. And the latest survey expects the risk of high inflation of 7.3%int the year to June, that lack of movement will be welcome news for the RBNZ.

Central Bank’s main focus is on expecting long horizon for the next couple of years. This is a better guide to how businesses will adjust between prices and wages, and signal if the inflation target is viewed as decent. Today’s news will also have been welcomed by the central bank.

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US CPI Preview: Are we past peak inflation?

Price pressure may show slowing down while the Fed’s preferred Core CPI measure shows that underlying inflation is still rising.

Tomorrow the US Bureau of Labor Statistics will release the July Consumer Price Index report.

Economists are expecting CPI headline to come in at 0.2% MoM , 8.8% YoY, with the core CPI report expected to print at 0.5% MoM, 6.1% YoY. Last month’s headline CPI printed 9.1% YoY, while the core CPI was 5.9%.

The biggest factor could be the gas prices, which have now fallen for over 50 days straight. Analysists estimated that the gas prices fell at least 10% in July from June levels, likely subtracting 0.5% or more off the headline CPI reading this month. Food prices were also lower to some extent in July than August, setting up a dynamic where the headline inflation reading may show price pressures fading while the Fed’s preferred “core” CPI measure shows that underlying inflation is still rising as home prices and pent-up demand for economic reopening offset the more volatile components.

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USD/CAD: A Tale Of Two Labor Markets

Traders are still trying to digest last week’s US jobs report, but one thing is clear that The US labor market is outperforming Canada’s labor market.

Markets are starting to settle into the traditional “Dog Days of Summer” trade, major indices, commodities and currency pairs seeing relatively little movement on the day ahead of tomorrow’s highly expected UC CPI report.

Traders are still trying to digest last week’s US jobs report, but one thing is clear: The US labor market is outperforming Canada’s market. Whereas the US just saw its strongest job growth in five months, a new revolving low in its unemployment rate, and has fully recovered all of the job losses since the start of the pandemic, Canada has now seen two consecutive months of outright declines in full-time employment.

Central banks world wide remained hyper-focused on inflation, but an outright contraction in employment, especially against a backdrop of falling commodity prices and a slowing global economy, could certainly prompt some to slow or pause their tightening cycles. This now is the reality that the BOC has to wrestle with, presenting a possible bullish catalyst for the US dollar relative to the loosie.

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Gold Loses Some Sheen as Hawkish Fed Outweighs Softer Inflation

It’s been difficult for Gold to keep its bullish movement even though inflation data supporting the view that the Fed’s rate hikes are slow. Perhaps a bit of base and stability is needed for gold to gear up for a clean breakout above $1800.

After the soft CPI data and today’s weaker than as it was expected PPI data added to the belief that inflation has reached it’s peak. As a result, US stocks initially expand their gains to three-month highs, before easing back.

Investors are betting that softening inflation will allow the Fed to increase interest rates less aggressively. We can also see bond yields rise with the 10-year breaking the high of 2.816%, with production rise with the 10 year breaking Wednesdays high of 2.816%, with the production in Europe also rising. This kept a cover on Gold and Silver, however the dollar did dell against most of the currencies-especially those risk sensitive commodity dollars.

Investors of Gold will be keeping a close eye on bond production. For as long as they don’t rise too much then we should see the metal start continue to shine as it has done over the past 3 weeks.

Rebound in the production of bonds underscores uncertainty about the future path of inflation and interest rates. A couple of Fed officials have already said the Fed wants to see more evidence that inflation is on a down path. With odds of 75 basis point hike having dropped, the Fed is careful not to push too hard against that, but at the same time leave the door open for such an aggressive hike should incoming data from now until mid-September show another upsurge in prices or if employment once again probes to be very hot.

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JPY/NZD Weekly Fundamental Forecast: RBNZ Hike May do Little for NZD

JPY

Divergence is increasing on Yen future prices and market positioning. Yen is at it’s 24-year low, net-short exposure is at its least bearish level since March 2021. Over 27k gross shorts were closed over the past two weeks, with 8.5k gross longs added to it. Gross longs are also at their most bullish level since the pandemic. And this suggests that traders do not believe the Bank OF Japan will retain their ultra-easy monetary policy for as long as the central bank suggests. But it also means that prices could be too low relative to market positioning, or market positioning has jumped the gun and may need to reserve course. As divergences between prices and market positioning rarely last for too long.

NZD

NZD futures are on the cusp of flipping to net-long exposure for the first time since April. Admittedly it was only net-long for a single week but it does at least show the appetite to be short in almost non-existent, with net short exposure sitting at -276 contracts.

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August RBNZ Preview and what next for the NZD/USD

It is widely expected that the Official Cash Rate will be raised by 50 bp taking the cash rate to 3% in tomorrow’s meeting of Reserve Bank of New Zealand. It will be the RBNZ’s fourth consecutive 50bp hike in a tightening cycle that started in October.

RBNZ committed to make sure consumer price increase returns to within 1 to 3 percent target range last month and said that it would continue to increase rates on a speed to maintain price stability.

Despite a slight increase in the unemployment rate to 3.3% in second quarter of 2022 the labour market remains tight beyond the maximum sustainable level and inflation at 7.3% y/y is miles above target. The RBNZ will likely revise higher inflation forecasts and reiterate its forecast for a terminal rate of 3.9% by mid-2023.

The NZDUSD increased 3.4% last week to close above 0.6450 for its best week since June 2020. However, following the latest bout of dour Chinese economic data released yesterday, the NZD/USD has given back just under half of those gains to be trading at 0.6358.

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Bank Of Canada Inflation on it’s Peak

Bank Of Canada deputy governor said that obvious inflation is high but it is still far form being too high.
Despite CPI has fallen to 7.6% y/y from 8.1% and core CPI is down to 6.1% from 6.2% y/y, the Canadian dollar was higher on the day but it also depends on which metric we are looking at, as two out of the three inflation measures the BOC’s prefer the increase. Common CPI hit the record high and also upwards from June.

Common CPI increased to 5.5% from 4.6%. CPI median rose to 5% from 4.9%y/y. CPI trimmed mean fell to 5.4%y/y from 5.5%. Core CPI increased to 0.5% m/m from 0.3%.

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GBP, Conservative Party Elections

The political backdrop, candidates and expected policies for traders to watch around next month’s UK Conservative Party leadership election, who will be the UK’s next PM ?.

Traders generally overestimate the impact of political move’s on market, however, politicians often have to water down their proposals to get them passed through the rest of the government apparatus and the majority of factors that drive markets on a day to day basis sit well outside the realm of politics. The bigger influence on markets is from International trade, monitory policy, supply chains, business confidence and complex interactions of millions of traders across the globe.

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EUR/USD Plunging Into Parity as US Dollar

Pair is moving around 1.0100-1.0270 channel for three weeks now. All attempts of the break through to its upper or lower border ended in failure. These attempts continued until 10th August after the publication of data on inflation in the US, the pair went up, turning the level of 1.0270 from resistance into Support. However, it was for a short while of two days and the pair returned to the channel, broke through its lower border on Thursday, and ended the week at 1.0039.

The dollar and the euro approached the equality level of 1.00000 again. The two reasons for the reversal of the pair are, drop in the market’s risk appetites and inflation/energy crisis in Europe. The consumer price index rose there in annual terms crisis caused by the sanctions imposed on Russia because of its invasion of Ukraine.

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USD CNH | US Dollar Chinese Yuan Offshore

The comment from Fed officials last week helped USD to surge and the expectations of 75bps rate hike on the next meeting which will be on 21st September. Last week there was a discussion of Fed officials about how it is premature to worry about the economy falling into recession and how they need to completely convince inflation coming down before stopping interest rate hikes.

China reported some unexpected data last week. Industrial production for the past month decreased to 3.8% YoY vs 4.6% which was expected. Retail sales for the last month decreased to 2.7% YoY and expectation was 5% YoY. As Covid issues continue, increasing drought conditions and worries of a collapsing housing market, the Public Bank Of China decreased its 1 year loan prime rate to 3.65% which was 5bps. The central bank then went on and said that it plans to spend $29 billion in special loans to troubled developers. However, the central bank will still have more to go if it plans on saving the dire housing market.

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GBP/USD – British Pound Jumped US Dollar

British pound jumped 0.82% yesterday, as the currency has rebounded from its worst week of the year. GBP/USD went down 2.53% last week, as the USD has found strength after weeks of beating a retreat. GBP/USD climbed yesterday after US New home sales dropped to 511 thousand in July, down from 585 thousand in August which is well below expectations.

The UK Manufacturing PMI crashed into contraction territory in August. The index fell to 46.0, down from 52.1 in July and shy of the estimate of 51.1. The dismal reading is part of a pan. European downward trend in manufacturing, which has been made worse by the prolonged war in Ukraine. Output has been an obstacle by higher costs, a drop in demand and supply chain problems.

There was better news from Services PMI, which was almost unchanged at 52.5, pointing to weak expansion. Still, it’s hard to see how the UK can avoid a recession with weak growth and increasing inflation. Business expectation is dropping, and that will likely lead to a cutback in spending, hiring and investment, which won’t help the economy one bit.

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NZD First Impressions: Retail Trade

The volume of goods sold fell by 2.3%. That is lower than the forecast for muted 0.3% rise, and well below the average analyst forecast for a 1.7% gain.

Today’s fall follows a 0.9% drop in spending in first quarter, leaving spending volumes down 3% through the first half of the year. Spending in core categories in down 2%.

Looking under the surface, households have been winding back their spending on durable items like electronics and furnishings. There has also been a fall in vehicle sales. Those are the same categories where spending rose strongly when Covid-19 first arrived on our shores and measures to protect public health prompted a shift away from spending on services.

Now that health restrictions have been rolled back, and with the opening of the borders allowing tourists back in the country, there is increased spending on hospitality and accommodation services. However, the increases have not offset the reduced spending in other areas.

Many households have been shielded from the impact of interest rate increases to date due to the high level of mortgage fixing in the New Zealand market. Over the coming months, debt servicing costs will rise sharply for many households as they refix at higher interest rates. And coming on top of today’s soft result, that points to weak spending through the back part of the year.

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Additional China stimulus helps stimulate the Aussie

After problem in the housing market and a recent bout of poor data from China, including weak retails Sales and Industrial Production, China has implemented several polices to help the beleaguered sectors. Earlier this week, China announced plans for $29 Billion in special loans to help troubled developers in the housing market. In addition, it cut loan prime rates, China announced 19 additional policies to help the economy, worth $146 billion. These policies will primarily support infrastructure projects. However, although these may be positive steps towards helping housing and infrastructure, will it be enough to help the broader economy ?

One currency that has seemed to get a bid on the back of the China news is the AUD. EUR/AUD has made a Year to Date high on 4th February near 1.6226 and quickly began a decent lower. Two months later, on 5th April the pair made a low of 1.4320 as the Euro sold off due to lack of commitment by the ECB to raise interest rates. EUR/AUD then bounced just above the 50% retracement level from the 4th Feb highs to 5th April lows, near 1.5273, in an ascending wedge formation. The pair spiked through horizontal resistance at 1.5354 and resumed the prior trend lower, breaking below the ascending wedge on 7th July near 1.4975. The target for the breakdown of an ascending wedge is a 100% retracement.

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Australia Retail Sales Growth at 4-Month High

The ABS initial estimates of official retail showed a much stronger than expected 1.3% gain in July. That compares to a low rise of 0.2% in June and marks the strongest monthly gain since March. The consensus forecast was of a 0.3% rise The detail shows a broad-based lift with nothing to suggest the monthly gain is a rogue. Rising retail prices undoubtedly account for a sizeable part of the rise, with volumes likely to have been somewhat flatter.

Recall that the ABS retail release now comes in two stages, an early preliminary release with limited detail and a final estimate that may see some revisions and provides the full range of additional detail.

The limited detail available for July shows a strong rebound for department stores and a strong gain for clothing and footwear, with robust rises for cafes and restaurants and basic food. The only soft spot was around household goods which saw a second consecutive monthly decline, down 1.1%mth. That weakness may be a sign that housing-related and big ticket durables spend in contracting but the rest of the detail suggests this is being more than offset by strong gains in both small ticket discretionary categories and essentials.

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How to earn money online?

We are all experiencing the changes happening around us. Everything is happening online, when our economy is lagging behind, regular jobs are going to be reduced. The biggest question that arises here is - how to earn money in India? Since online earning is going to be the next big thing and one can definitely switch to online jobs.

This is one of the easiest ways to earn money in India. There is nothing better than investing your time in things that pay you back. Now, there are many ways to earn money online in India. These opportunities are especially beneficial for students, housewives, job seekers or retired persons. The method that is going to be discussed will not only increase your monthly income but will also keep you invested in things that you love.

 

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Second quarter GDP figures are expected to be strong recession signal

Second quarter GDP figures are expected to be strong. Economy is expected to regain the positive momentum and expectations of analysists are of 4.5% compared to 3.1% registered in the first quarter of the year. The monthly reading for June is also expected to show a negligible improvement, inching to 0.1% from no growth previously.

Consumption was contributive too on the demand side. With the unemployment rate pinned at record lows, retail sales marked six months in the expansion area from March onwards .

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Eurozone Consumer Price Index (CPI) YoY

The ECB is expected to raise the interest rate on their next meeting on 7th Sep. The discussion is that if the rates will be increased by 50bps or 75bps ? ECB members have been preparing the markets for what could be a potential 75bps hike, despite the possibility of the Eurozone falling into a recession:

ECB’s Schnabel said that both the likelihood and cost of current high inflation becoming entrenched in expectations are uncomfortably high.

ECB’s Villeroy said that the ECB needs to get rates to neutral by the end of this year, which is somewhere between 1% and 2%.

ECB’s Rehn said a significant hike in interest rates is needed in September.
ECB’s Knot said frontloading should not be excluded and that he is leaning towards a 75bps hike.

These comments came right before the Eurozone CPI Flash, which will be released on Wednesday. Expectations are for a slight uptick to 9% YoY in August vs a July reading on 8.9% YoY. Germany released it preliminary inflation data for July. The headline was Inflation rate of 8.8% YoY and expectation of 8.8% YoY and a July reading on 8.5% YoY.

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RBA to Raise the Cash Rate by 50 bps, AUD

Reserve Bank meeting is on 6th September. It is expected that the cash rate will be raised by 50 basis points to 2.35%.

The best approach will be to strengthen the statement we saw last month, not on a pre set path and following Chair Powell, at some point it will be appropriate to slow the pace of tightening while emphasizing that the cycle may have considerably further to run. Raising the cash rate by 50 bps will move the cash rate into the neutral zone.

The 2.5% estimate from the RBA assumes a zero real rate and a nominal component equal to long term inflationary expectations which are judged to be 2.5%. The challenge contain inflationary expectations in this cycle will be formidable given the current evidence that both businesses and households are becoming accustomed to rising prices and short-term inflationary expectations are rising quickly.

Holding the cash rate at 3.35% through 2023, the neutral setting of 2.0% is a necessary condition for the Bank to bring inflation down close to the 3% target-the top of 2-3% range. But there will be a price to pay for such success-the economy to grow by only 1% in 2023-well below the trend rate of growth of around 2.5%.

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What’s next for AUD/USD

RBA board meeting will take place next week and an increase in Cash rate is expected, How much ? It’s a question. RBA discussion in June brought a hawkish element to the RBA’s monetary policy, noting that the current level of the cash rate is well below the estimated neutral rate, thought to be at least 2.5%. The neutral real interest rate is the real interest rate that is neither stimulatory nor contractionary.

Based on the RBA’s forecasts for inflation to rise to around 7 percent and for the unemployment rate to decline further in the months ahead, the RBA needs to continue tightening interest rates past the neutral rate to fulfil its pledge that the Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.

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Inflation rate of 8.8% expected in August 2022

The statistics released from 30th August turned out to be quite close to market expectations. The harmonized consumer price index in Germany, was 8.8% with the forecast of 8.8%. The consumer price index in the Eurozone amounted to 9.1% instead of expected 9.0%.The index of business activity in the US manufacturing sector did not change at all over the month and amounted to 52.8, and the number of new jobs created outside the American agriculture sector did not go far from the expected either, 315k against 300k. As a result EUR/USD was moving along the equality line of 1.0000 whole week, fluctuating in the range of 0.9910-1.0078, and completed the five day period at the level of 0.9955.

The key day will be 8th September when the ECB will decide on the deposit rate and make a statement and comments on its monetary policy. Inflation in the Eurozone rose even more in August: from 8.9% to 9.1%. Many experts believe that the European regulator will raise the rate by 75 basis points at once.

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