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Asian Session − RBNZ Cuts Rates

Thu, Jul 24 2008, 08:08 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Market Brief

The Usd continued its strong run in Asian session as oil continued to sell-off to 6 week lows. The EurUsd fell to 1.5670 in early Asia. It attempted a weak rally above 1.5700 before slipping back to near session lows. The UsdJpy is pressuring the 108.00 resistance and NzdUsd collapsed on the RBNZ rate decision, trading down to 0.7418 (the last remaining support stands at 0.7385). The Usd buying had neutralizing effect on carry trades, with the EurJpy trading between 169.10 - 169..43 and the TryJpy jumping between 89.500 - 90.000. However, with risk appetite clearly increasing (VIX & 1m Implied Vols down), we expect carry trades to take full advantage. Asian Equity markets are stronger following the US equity indexes higher, as traders place bets that the worst of the markets weakness has passed.

In a surprise move, the RBNZ cut rates by 25bp to 8.00%, as a slight majority of economist were expecting the move to occur in September. The NzdUsd fell sharply on the news, from 0.7520 to 0.7430. The statement noted that "monetary policy has been tight for some time and is now restraining activity and medium-term inflation pressures." In addition, the RBNZ stated "providing inflation continues to improve and there is no excessive exchange rate depreciation, we would expect to lower the OCR further".. How far rates could fall would just be conjecture, but given past “neutral” policy around 6.25% we should expect both rates and the Nzd to come down significantly.

In Japan, the trade data showed the first y/y decline in export in 5 years. Overall exports dropped 1.7%, well below estimates. The decline was concentrated primarily to developed countries, but the pace of increase also fell noticeable in emerging Asia . BoJ's Mizuno hinted that the government may pronounce that Japan is currently in a recession and the BoJ is less concerned about inflation than downside economic risks. While the Jpy is trading on global risk appetite, speculation on Japan’s weak fundamentals must wait.

In the Eurozone, the German IFO index will start the European session. IFO is expected to continue its downtrend, but is still coming from a very elevated level. It’s hard to image, with steep falls in June business climate index and recent worrying market developments, that we would see anything but a decline. The Euro zone PMI could surprise to the downside, given the dreaded combination of rising prices pressure and soft economic activity.

In the UK, the retail sales will have the markets attention. After a significant increase in May’s figures, this release is looking gloomy at best. Surveys suggests the UK is heading for a sharp downward correction (and may impressive figure revised lower). We would expect, given the Gbp overbought condition, to continue to see pressure on the Gbp.

Currency Tech

AUDUSD
R 3: 0.9818
R 2: 0.9794
R 1: 0.9738
CURRENT: 0.9593
S 1: 0.9597
S 2: 0.9565
S 3: 0.9477

EURJPY
R 3: 171.81
R 2: 171.07
R 1: 169.97
CURRENT: 168.93
S 1: 168.25
S 2: 166.01
S 3: 165.33

USDSGD
R 3: 1.3826
R 2: 1.3717
R 1: 1.3661
CURRENT: 1.3621
S 1: 1.3452
S 2: 1.3399
S 3: 1.3300

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot

Published on  Thu, Jul 24 2008, 08:15 GMT