RBNZ’s McDermott Points To Further Easing
Overnight RBNZ Assistant Governor McDermott reiterated the bank’s previous comments that further easing will likely be required. Consequently, NZD rates market is now pricing a roughly 80% chance of a 25bp reduction at the upcoming November 10th meeting. McDermott also pointed to the upcoming Q3 inflation report which is expected to be low and thus confirm the case of a further cut.
NZDUSD is now moving lower within the broad bullish channel that has framed price action this year. Price is now approaching rising trend line support with key structural support coming in just below at around .6960 (July lows).
Fed’s Evans Wants To Wait For Higher Inflation
Fed’s Evans, speaking ahead of the September FOMC minutes release tomorrow, gave a slightly Dovish message. The Chicago Fed President said that he would not be surprised if there were a US rate hike in December and indeed “could be fine” with it, but might be better served to wait for inflation to pick up more. Evans says that he wants to see the rest of the data before deciding in December and whilst the election is not a bar to a November hike, he would prefer to wait for more economic data.
Referring to the economy, Evans said that the economy was on solid footing and the recent jobs report was a pretty good number. According to Evans, the relatively strong US Dollar has been challenging for manufacturing and has been a headwind, lowering import prices and this countering inflationary effects.
Evans said that the risk is inflation will not return to Fed’s 2% target rate within the acceptable time period. Evans added that if there was an overshoot, the policy would not have to “do much work” to lower expectations back down. The Chicago Fed President said that there are benefits to the Fed engineering policy to spur overshoot of 2% inflation target.
Finally, Evans noted that the “dots” on the future Fed funds rate path are very informative and show different viewpoints on the FOMC.
These comments are likely to echo the broader sentiment of the Fed to be revealed in the FOMC minutes release tomorrow with the Fed having opted to keep rates on hold in September whilst they await evidence of further progress towards their goals.
The US Dollar continues to push higher despite Friday’s weak jobs report, as expectations for a December hike remain intact. The Dollar Index is now breaking out above bearish trend line resistance running from the year to date highs suggesting a continuation of the current bullish channel.
Oil Markets Jump On Russian Support
WTI Crude reached a one-year high yesterday fuelled by demand in response to comments made by Russian President Vladimir Putin. The Russian leader commented that “Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same. In the current situation, we think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market. We support OPEC’s recent initiative to cap output and think that at the OPEC meeting in November this idea will materialise in a specific agreement, giving a positive signal to the markets and investors”.
These comments provided a wave of support for energy markets and countered fears that Russia might block the deal or hamper the full implementation. News that Russian will now consider a freeze has further encouraged market’s expectation that the November meeting will deliver a solid deal.
The technical landscape in Oil supports the idea of higher prices. The large inverse Head & Shoulders pattern which has formed over the last two years portends a breakout higher. A sustained breach of the neckline of the pattern at 51.69 opens a run up to the completion of a larger ABCD symmetry objective at 64.93 alongside bullish channel resistance. The 2015 high comes in just below at 62.65