Forex Afternoon Wrap – 11/06

NZD hits 5 year lows on RBNZ rate cuts. AUDNZD gains over 2% for the day

Key Notes:

• RBNZ OCR 3.25% vs. 3.5% previously
• Australia employment change 42k vs. 15k; unemployment rate 6% vs. 6.2%; Participation rate 64.7% vs. 64.8%
• China industrial production y/y 6.1% vs. 6%
• China retail sales y/y 10.1% vs. 10.1%
• France CPI m/m 0.2% vs. 0.2%; CPI y/y 0.3% vs. 0.3%
• US retail sales m/m 1.2% vs. 1.1%; core retail sales m/m 1.0% vs. 0.7%
• US weekly unemployment claims 279k vs. 277k
• US import prices m/m 1.3% vs. 0.9%

Later:

• US business inventories
• BoC Financial system review
• BoC Governor Poloz speech

The Reserve Bank of New Zealand kicked off today with a surprise rate cut of 25bps, sending the Kiwi to 5 year lows trading near 0.70. The RBNZ did not rule out further rate cuts and the general market consensus is to see further rate cuts to around 3% by end of 2015 or early 2016. Inflation and weaker demand for exports were seen as one of the driving reasons behind the RBNZ’s rate cut.

The Australian jobs report released earlier today showed a strong print with the Australian unemployment rate improving to 6% from a revised 6.1% previously. The Australian economy also added 42k new jobs showing further signs of strengthening in the economy. The Aussie surged on the news posting session highs above 0.778 but failed to keep its gains as the currency tumbled to test previous lows to 0.76975. The Aussie however posted strong gains against the fundamentally weaker New Zealand Dollar.

The Japanese Yen looks to have stabilized after the sudden comments from BoJ’s Kuroda. The USDJPY was trading stronger day albeit within the range from yesterday’s high and low. USDJPY was seen trading above the 123.3 handle at the time of writing.

The European trading session saw the single currency weaker across the board and earlier rumors of Germany accepting the Greek deal was dismissed. However, there seems to be some of kind of compromise being reached as the negotiations continues on in Brussels. There was no major economic data from the Eurozone, with the exception of French CPI which fell below estimates, rising 0.2%, but above last month’s 0.1% growth.

The British Pound, which surged to 1.553 highs yesterday, was trading relatively weaker today with the Cable seen testing the lows to 1.542. A close above 1.556 is required to see the Cable post fresh gains targeting 1.59 eventually.

The US economic data today saw the retail sales numbers which managed to post a healthy print beating estimates on both the headline and the core. However, when taken into consideration the previous month’s of decline, the market reaction was rather subdued with the US Dollar Index briefly spiking above 95.25. Failure to close above 95.25 could shift the US Dollar sentiment to be extremely bearish with the Dollar Index likely to dip to previous lows near 94.10.

Later in the evening the business inventories data is due from the US followed by the Bank of Canada’s Financial stability review report and a speech from the BoC Governor Stephen Poloz.