RBNZ’s Orr supports kiwi, US dollar stronger ahead of Powell

Summary:

• A speech given by RBNA Governor Adrian Orr has supported the NZ dollar
• Japanaese headline price growth disappoints, core measures little changed
• US dollar leads the gains in anticipation of Powell’s opening remarks in Jackson Hole

Less dovish

The New Zealand dollar got support overnight from RBNZ Governor Adrian Orr who was interviewed by Bloomberg. He suggested the latest 50 bps rate cut significantly reduced probability of having to do more in the future, and added that using quantitative easing as an option to revive inflation and boost economic growth was not a base case for the Antipodean central bank. The latter phrase might be particularly important for FX investors who have been afraid of using unconventional monetary policy in New Zealand. On top of that, Adrian Orr said that the central bank would do whatever it takes to support the NZ economy (famous words spoken by Mario Draghi several years ago). RBNZ Governor also added that now the central bank could afford to wait, watch and observe what was happening in the economy. The speech given by Adrian Orr has slightly reduced market-based probability of rate cuts in the NZ economy which now stands at around 61% (it assumes another 25 bps cut by the year-end) compared to 68% on Thursday. 

Looking beyond the NZ dollar one may also notice that the greenback is holding firmer as well. The key point today is obviously Jerome Powell and his opening remarks in Jackson Hole. Market participants want to know if the latest rate cut is still considered as a mid-cycle adjustment, as it was said in the minutes, or the start to further cuts. Taking into account that expectations remain lofty ahead of his speech, we reckon that the US dollar could gain following this event.

We have got a bullish candlestick in the NZDUSD market (morning start) which could encourage buyers to attempt to enter the market. Source: xStation5

Subdued price growth

In terms of macroeconomic releases during Asian hours trading it is worth focusing on Japanese inflation for July. Headline price growth came in at 0.5% in annual terms, slightly below the consensus of 0.6%. On the other hand, core inflation gauges were mixed - inflation excluding solely fresh food remained unchanged at 0.6% while inflation excluding both fresh food and energy ticked up to 0.6% from 0.5%. Either way, today’s data matched disappointing readings we have been getting for months, hence pressure on the Bank of Japan to undertake some steps could mount at a time when other central banks are cutting rates again.

Japan’s price growth remained lacklustre last month pressuring the BoJ to take some measures. Source: Macrobond, XTB

In the other news:

• New Zealand retail sales rose 0.2% QoQ (constant prices) during the three months through June, the consensus had called for a 0.3% QoQ increase

• The PBoC set the USDCNY reference point at 7.0572, the highest level since March 2008