RBNZ rate hike expected, Kiwi soars, Dollar drifts lower

US Yields Drop, Wall Street Stocks Climb Ahead of FOMC

Summary:

New Zealand’s Kiwi (NZD/USD) soared heading into today’s RBNZ meeting where policymakers are expected to increase interest rates by 75 bps. At the close of trade in New York, the NZD/USD pair outperformed, settling at 0.6151 (0.6097), up 0.9%.

The benchmark US 10-year bond yield dropped 6 basis points to 3.76% which weighed on the Greenback. Two-year US rates fell to 4.51% from 4.54%. Other global yields eased, but to a lesser extent than that of their US counterparts.

Against the yield sensitive Japanese Yen, the Dollar (USD/JPY) slid 0.62% to 141.20 from 142.11 yesterday. The Euro (EUR/USD) rebounded 0.48% to 1.0297 (1.0242).

The Australian Dollar (AUD/USD) rallied to 0.6645 from 0.6605, buoyed by its smaller cousin, the Kiwi. Sterling (GBP/USD) climbed to close at 1.1887 from 1.1824, a gain of 0.51%.

Against the Asian and EMFX, the US Dollar retreated. USD/CNH (Dollar-Offshore Chinese Yuan) slumped to 7.1400 against 7.1740 yesterday. USD/THB (Dollar-Thai Baht) eased to 36.10 (36.30).

Wall Street stocks climbed heading into tomorrow’s FOMC meeting minutes announcement. The DOW was up 1.13% to 34,080 (33,730) while the S&P 500 gained 1.24% to 4,000 (3,957).

Economic data released yesterday saw Japan’s BOJ Core CPI (y/y) rise to 2.7% from a previous 2.0%, against forecasts at 2.2%. UK Public Sector Net Borrowing fell to GBP 12.7 billion (GBP 16.9 billion).

Canada’s October Retail Sales dipped to -0.5%, matching expectations while Core Sales fell to -0.7%, from a previous downward adjusted 0.5% (from 0.7%).

The Eurozone Consumer Confidence Index climbed to -24 from a previous -28, bettering estimates at -26. US Richmond Manufacturing Index matched forecasts at -9 against a previous -10.

• NZD/USD – The Kiwi, otherwise known as the “flightless Bird”, sprouted wings, soaring to an overnight high at 0.6164 from yesterday’s open at 0.6097, and settling at 0.6151. The RBNZ is widely expected to hike its Official Cash Rate to 4.25% from the current 3.5% at the conclusion of their monetary policy meeting today (12 noon, Sydney time).

(Source: Finlogix.com)

• AUD/USD – The Australian Dollar rallied against the broadly based weaker Greenback, buoyed by the Kiwi. Overnight, the AUD/USD pair traded to 0.6651 highs before easing modestly to 0.6645 at the New York close. Overnight low traded was at 0.6604.
• EUR/USD – The shared currency rebounded, climbing to 1.0297 from yesterday’s 1.0242 open. The Euro rocketed to an overnight high at 1.0308 before easing modestly at the close. A rise in the Eurozone Consumer Confidence Index and broad-based US Dollar weakness supported the shared currency.
• USD/JPY – The Greenback tumbled against the Japanese Yen weighed by the fall in US bond yields. Japan’s 10-year JGB yield, by contrast was unchanged, at 0.24%. In another volatile session, the overnight low traded for USD/JPY was at 141.08 while the high was at 142.24.

On the Lookout:

Ahead of the FOMC meeting minutes release (6 am Sydney time tomorrow), the economic calendar picks up.

Australia kicked off with its November Flash Manufacturing PMI which eased to 52.2 against forecasts at 52.7. Australia’s November Flash Services PMI fell to 48.6 from October’s 49.3. The Aussie Dollar (AUD/USD) was little changed following the release, at 0.6646.

The RBNZ’s interest rate decision is a 12 noon Sydney, where the New Zealand central bank is widely expected to increase its Overnight Cash Rate to 4.25% from 3.5%. France kicks off European data with its November Flash Manufacturing PMI (f/c 47 from 47.2), French November Flash Services PMI (f/c 50.6 from 51.7 – ACY Finlogix).

Germany follows with its November Flash Services (f/c 46.4 from 46.5) and German Manufacturing PMI’s (45.2 from 45.1 – ACY Finlogix). Next is the Eurozone November Flash Services PMI (f/c 48.1 from 48.6), Eurozone November Flash Manufacturing PMI (f/c 46 from 46.4 – ACY Finlogix).

The UK follows next with its UK November Flash Services PMI (f/c 48 from 48.8; UK November Flash Manufacturing PMI (f/c 45.6 from 46.2).

The US rounds up today’s data releases with its October Final Building Permits (f/c 1.526 million from 1.564 million – ACY Finlogix), US October Durable Goods Orders (f/c 0.4% from 0.4%), US October Core Durable Goods Orders, excluding Transport (f/c 0.1% from -0.5% - ACY Finlogix), US November Flash Global Manufacturing PMI (f/c 49.9 from 50.4 – ACY Finlogix), US November Flash Global Services PMI (f/c 47.7 from 47.8 – ACY Finlogix). US Octoberr New Home Sales (m/m f/c 0.57 million from a previous 0.603 million – ACY Finlogix).

US markets will be closed tomorrow (Thursday, 24 November) to observe the Thanksgiving holiday.

Trading Perspective:

The drop in US bond yields weighed on the Dollar while equities rose. Ahead of tomorrow’s FOMC meeting and various Fed speakers, expected both asset and FX markets to consolidate. The likelihood of further unwinding of long Dollar bets, which have been climbing in recent sessions looms large. Upcoming economic data releases are also key heading into tomorrow’s US Thanksgiving holiday. Markets will also be keeping watch over speeches by Federal Reserve officials for clues. Unless we see more hawkish rhetoric from Fed officials, expect the US Dollar to remain under pressure against its rivals today.

• EUR/USD – The shared currency had a decent bounce following several days of losses. Overnight, the Euro rallied to a high at 1.0308 before easing to settle at 1.0297 at the New York close. In early Asian trade, short covering kept the EUR/USD pair above the 1.0300 level, at 1.0305. Immediate resistance lies at 1.0310 followed by 1.0330 and 1.0360. Immediate support can be found at 1.0280 and 1.0240. Look for the Euro to stay supported in a likely range today of 1.0250-1.0350.
• AUD/USD – The Aussie Battler rallied against the generally weaker Greenback to 0.6645 from 0.6605 yesterday. Overnight high traded for the Aussie was at 0.6651. For today look for immediate resistance at 0.6660 followed by 0.6685 and then 0.6710. Immediate support can be found at 0.6610 (overnight low traded was 0.6604). The next support is found at 0.6580. Look for the Aussie to drift higher in a likely range today of 0.6610-0.6670.
• USD/JPY – Against the Japanese Yen, the US Dollar slid to 141.20 from yesterday’s open at 142.11. The fall in the US 10-year bond yield to 3.76% from 3.83% weighed on this currency pair. Japan’s 10-year JGB rate was unchanged at 0.24%. For today, look for immediate support at 141.00 followed by 140.70 and 140.30. Expect another choppy trade in the Dollar Yen pair, likely between 140.80-142.20. Just trade the range on this puppy today.
• GBP/USD – Sterling benefitted from a broadly based weaker Greenback, rallying to 1.1887 from yesterday’s open at 1.1824. Overnight high traded for the British Pound was at 1.1903. Today, look for immediate resistance at 1.1910 followed by 1.1940 and 1.1980. Immediate support can be found at 1.1850, 1.1820 and 1.1790. Look for further choppy trade in this currency pair, likely between 1.1820-1.1920. Just trade the range, there’s 100 pips in it.

Have a good trading day ahead, happy Wednesday all.