Inflation data boost NZD, Asian stocks finish mixed

Summary:

• Australian dollar trades lower following release of RBA minutes

• Inflation in New Zealand moves close to the midpoint of the target range

• Mixed picture of Asian equities with declines seen on the Chinese market and gains in the other parts of the region

The Australian dollar is trading lower against majority of its G10 peers after the Reserve Bank of Australia released minutes from its latest meeting. In the document we can find a message that the rates will likely remain unchanged for now but the closest monetary policy move will likely be increase rather than decrease in the interest rates. However, RBA noted that it will depend on how situation develops in terms of unemployment and inflation as there are no strong reasons to adjust policy right now. The Bank recognized improving situation on the labor market with falling spare capacity and lower unemployment among youth. As the inflation was rather subdued as of late such a situation may help boost wage growth and later on inflation. The central bank highlighted that weaker currency and low interest rates are helping domestic economic growth and expects solid growth figures for the third quarter. However, not as strong as in the first half of the year. The Australian dollar moved lower following the release of the document but the loss was quickly recouped. Nevertheless, AUDUSD returned to the falling mode later on but it was more due to the USD strengthening.

CPI inflation in New Zealand accelerated strongly in the third quarter of the year. However, questions remain whether this pick-up will be sustained. Source: Macrobond, XTB Research

While the Australian dollar is among the underperformers the other Antipodean currency - New Zealand dollar - is trading higher against all the other majors. An inflation report released overnight can be named as a reason as it showed a strong pick-up in the price growth. On the quarterly basis inflation in the third quarter of 2018 reached 0.9% against expectations of 0.7% QoQ and previous reading of 0.4% QoQ. The headline reading on the year-over-year basis showed inflation accelerating to 1.9% YoY against expectations of 1.7% YoY and prior reading of 1.5% YoY. However, one of the main factors behind such a jump were higher fuel prices what resulted from both - higher oil prices in the markets and newly imposed fuel taxes. Having said that, the effects may can be partially viewed as one-offs and may not be sustained over the long period of time. Because of that it is unlikely that this reading will change anything when it comes to the attitude of the Reserve Bank of New Zealand. RBNZ announced that it will stay cautious when conducting monetary policy and will not rush any moves in the interest rate to warrant that once such move happens it will be permanent. Nevertheless, the reading turned out to be a positive surprise for investors and sent NZDUSD higher.

NZDUSD moved significantly higher after release of the inflation data yesterday. The pair approached the upper limit of the downward price channel. In case the upbeat sentiment prevails during the upcoming sessions we may see the pair painting a higher high and breaking the downtrend structure. Source: xStation5

Stock trading during today’s Asian session was equivocal. In Australia S&P/ASX 200 (AUS200) added 0.56% being possibly boosted by weaker currency and RBA minutes. Most of the Chinese stock benchmarks were trading lower but HSCEI (CHNComp) is trading 0.7% higher at press time. Speaking of China it is worth to note that the CPI data from this country was also released over the nigher. However, the Chinese inflation data barely had an impact on stocks and currency as it came in line with expectations at 2.5% YoY. Shares in Japan outperformed and the Japanese Nikkei (JAP225) closed 1.13% higher.

JAP225 (Nikkei futures underlying) bulls managed to defend the 22000 pts handle and the upward trendline. The index jumped today but the momentum was not strong enough to warrant a close above the 200-session moving average (purple line on the chart above). Source: xStation5