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NZD/USD and NZD/JPY pressured on NZD’s broad weakness

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    ActionForex.com
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    New Zealand Dollar continues to diverge with other commodity currencies this week. In particular, yield differential has driven AUD/NZD to the highest level in 2 years. We argue that recent rally is over-extended as discussed in this report. Cross selling is, nevertheless, keeping the Kiwi weak elsewhere. For example, despite weak downside momentum, NZD/USD’s fall from 0.6175 short term top is still in favor to extend lower with 0.6600 minor resistance intact. Focus is on 55 day EMA (now at 0.6511). Sustained break there could pave the way to 38.2% retracement of 0.5469 to 0.6715 at 0.6239.

    NZD/JPY’s picture is slightly worse as 55 day EMA is taken out already. As long as 70.52 resistance holds, correction from 71.67 should extend through 68.10 support to 38.2% retracement of 59.49 to 71.67 at 67.01.

     

    Australia trade minister: China’s anti dumping investigation disappointing and perplexing

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      ActionForex.com
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      Trade dispute between China and Australia heightens after China’s Ministry of Commerce indicated it had decided to initiate the anti-dumping investigation into Australia’s wine industry. Australia Trade Minister Simon Birmingham hit back and criticized the move as ”disappointing and perplexing”

      Birmingham said, “Australian wine is not sold at below market prices and exports are not subsidized. Australia will engage fully with the Chinese processes to strongly argue the case that there are no grounds to uphold the claims being made.” “This is a very disappointing and perplexing development”.

      Reuters Tankan manufacturing rose to -33, best since April

        By
        ActionForex.com
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        Reuters Tankan manufacturing index rose to -33 in August, up from -44. While still deeply negatively, the reading was already the best since April’s -30. Further improvement in manufacturers’ mood is expected as they forecast rise to -22 in November.

        No manufacturing index also rose slightly to -23, up from last month’s -26, standing at the same level as April’s. However, deterioration is expected ahead, with the index forecast to drop back to -26 in November.

        Respondents noted that demands remain weak despite improving from Q1. Us-China trade tensions present uncertainty for the outlook. The survey, designed to track BoJ’s Tankan, polled 495 large- and mid-sized non-financial companies, of which 232 firms responded.

        RBA rules out further easing, AUD/JPY to break out of triangle soon

          By
          ActionForex.com
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          Minutes of August 4 RBA meeting showed board members “reaffirmed that there was no need to adjust the package of measures in Australia in the current environment.” Nevertheless, they agreed to “continue to assess the evolving situation” and “did not rule out adjusting the current package if circumstances warranted.”

          RBA noted that “the worst of the global economic contraction had passed” but outlook remained “highly uncertain”, depending upon containment of the coronavirus. Australia’s downturn “had not been as severe as earlier expected” and “a recovery was under way in most of Australia”. Though, the recovery is likely “slower than earlier expected” too with outbreak in Victoria.

          Australia Dollar is trading slightly softer after the release. AUD/JPY has been trading in a triangle pattern since early June. It should be around time for a breakout. At this point, a break above 76.86 resistance is mildly in favor as long as trend line support (now at 75.58) holds. However, the “thrust” following a triangle breakout is usually short-lived and terminal. Hence, attention would be on signs of a quick reversal in this case.

          Meanwhile, sustained break of the trend line support will be the first sign of near term bearish reversal. Focus would then be turned to 74.82 support for confirmation.

          Gold heading back to 2075 high after clearing EMA resistance

            By
            ActionForex.com
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            Gold’s rebound from 1862.55 resumed today and takes out 4 hour 55 EMA (now at 1964.66). There is no change in the view that it’s still staying in consolidation pattern from 2075.18 is extending, and would take a while more to complete. Though, current development suggest that it’s slightly more likely a sideway pattern rather than a deep correction.

            Further rally is now in favor to retest 2075.18 high. We’re not expecting a break there for the near term. On the downside, though, break of 1929.30 will turn bias back the downside for 1862.55 low instead.

            US Empire state manufacturing conditions dropped sharply to 3.7

              By
              ActionForex.com
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              US Empire State manufacturing business conditions dropped sharply to 3.7 in August, down from 17.2, well below expectation of 16.5. Looking at some details, new orders dropped -15.6 pts and turned negative to -1.7. Shipments dropped -11.8 pts to 6.7. Number of employees rose 2.0 pts to 2.4. But average employment workweek dropped -4.2 pts to -6.8.

              For six months ahead, general business conditions dropped -4.1 to 34.3. New orders dropped -4.7 to 37.2. Number of employees dropped -5.6 to 155 Average employee workweek dropped -1.9 to 2.0. Capital expenditures dropped -3.1 to 6.0.

              Full release here.

              UK Liz pledges to fight to consign unacceptable and unfair US tariffs

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                ActionForex.com
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                UK Trade Minister Liz Truss wrote in a Telegraph op-ed that US tariffs on Scotch whisky are “unacceptable and unfair”. “I cannot be clearer about that,” she added. “Whisky-making is one of our great industries and a jewel in our national crown.” Truss pledged to “fight to consign these unfair tariffs to the bin of history”

                She also stated her position as “I firmly believe free and fair trade remains the best way forward for the world and for Britain”. Regarding the trade negotiations with Japan, “we have consensus on the major elements of a deal that will go beyond the agreement the EU has with Japan.” She is targeting to complete the trade deal with Japan by the end of August.

                PBoC kept MLF rate at 2.95% for 4th month, USD/CNH softer in range

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                  ActionForex.com
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                  China’s central bank PBoC rolled over CNY 700B maturing medium-term loans today. Rate was kept at 2.95%, unchanged for the fourth straight month. The injection was well above the two set batches of MLF that are set to expire in August, totalling CNY 500B. Markets are expecting no change to the benchmark loan prime rate on Thursday.

                  USD/CNH is mildly softer in range today, mildly due to Dollar’s movements. It’s staying in near term falling channel. Further fall is expected as long as 6.9804 support turned resistance. USD/CNH would target 6.8452 support. But we’d expect strong support around there to complete the three-wave consolidation pattern from 7.1953.

                  Japan Q2 GDP contracted record -27.8% annualized, Nishimura pledges flexible and timely support

                    By
                    ActionForex.com
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                    Japan’s GDP contracted -7.8% qoq in Q2, worse than expectation of -7.6% qoq. Annualized, GDP contracted -27.8%, versus expectation of -27.2%. The annualized contraction was worst since comparable data was available since 1980. It also well surpassed the -17.8% annualized decline in GDP in Q1 2009 during the global financial crisis.

                    Looking at some details, private consumption plunged -8.2% qoq, versus expectation of -7.1% qoq. Capital expenditure dropped -1.5% qoq, better than expectation of -4.2% qoq. External demand dropped -3.0% qoq, also slightly better than expectation of -3.2% qoq. Price index rose 1.5% yoy, below expectation of 1.9% yoy.

                    Economy Minister Yasutoshi Nishimura pledged “flexible, timely” action to support the economy. “We hope to do our utmost to push Japan’s economy, which likely bottomed out in April and May, back to a recovery path driven by domestic demand,” he added.

                    US retail sales rose 1.2% in Jul, ex-auto sales up 1.9%

                      By
                      ActionForex.com
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                      US retail sales rose 1.2% mom to USD 536.0B in July, below expectation of 1.7% mom. Though, ex-auto sales rose 1.9% mom, above expectation of 1.4% mom. Ex-gasoline sales rose 0.9% mom. Ex-auto and gasoline sales rose 1.5% mom.

                      Non-farm productivity rose 7.3% in Q2, above expectation of 1.5%. Unit labor costs rose 12.2%, above expectation of 6.5%.

                      Germany expects strong increase in Q3 GDP

                        By
                        ActionForex.com
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                        Germany’s Economy Ministry said the country is “back on the road to recovery” since tough shutdown was eased since May. Industry’s “rapid catching-up” is continuing, largely driven by automotive sector. But it’s expected to lose momentum due to “weak foreign demand”.

                        Also, with “somewhat more favorable starting position”, there will be a “strong increase in gross domestic product in the third quarter.” But the course will depends on the pandemic at home and abroad. Some of Germany’s trading partners are “still heavily impacted by the pandemic”.

                        “For this reason alone, after the first stronger recovery in May and June, the further recovery process of the German economy will only progress slowly and take a long time to complete.”

                        Full release here.

                        Eurozone GDP contracted -12.1% in Q2, EU down -11.7%

                          By
                          ActionForex.com
                          -

                          GDP contracted -12.1% in Eurozone in Q2, -11.7% qoq in EU. Both were sharpest declines since the series began in 1995. Annually, GDP contracted -15.0% yoy in Eurozone, -14.1% in EU, also worst on record. Employment in Eurozone dropped record -2.8% qoq, and -2.6% in EU.

                          Also released, Eurozone trade surplus widened to EUR 17.1B in June, up from EUR 8.0B, but smaller than expectation of EUR 18.0B.

                          China retail sales unexpectedly contracted in July, USD/CNH channeling lower

                            By
                            ActionForex.com
                            -

                            The batch of economic data released from China is mixed. In particular, retail sales contracted -1.1% yoy in July, versus expectation of 0.3% yoy. That showed vulnerability in domestic demand. Nevertheless, industrial production rose 4.8% yoy in July, slightly above expectation of 4.7% yoy. Fixed asset investment dropped -1.6% ytd yoy in July, above expectation of -3.3% ytd yoy.

                            USD/CNH is still channeling well as fall from 7.1961 extends. This decline is seen as the third leg of the consolidation pattern from 7.1953. Hence, while fall could be seen, we’d expect strong support from 6.8452 to contain downside and bring rebound. Meanwhile, break of 6.9804 resistance will now suggests short term bottoming and turn bias back to the upside.

                            New Zealand BusinessNZ PMI rose to 58.8, but employment stays in contraction

                              By
                              ActionForex.com
                              -

                              New Zealand BusinessNZ Performance of Manufacturing Index rose to 58.8 in July, slightly up from 56.2. Looking at some details, productions rose from 58.4 to 61.4. New orders rose from 58.2 to 67.4. However, employment dropped from 48.5 to 46.5. Employment remained weak and stayed in contraction for the 5th straight month.

                              BusinessNZ’s executive director for manufacturing Catherine Beard warned: “we should be careful not to interpret this as a new dawn for the sector, rather a catch-up for many trying to get back to a new sense of normality.”

                              BNZ Senior Economist, Doug Steel said that “July’s PMI had firmly set up the idea that manufacturing GDP would bounce back strongly in Q3 after what was surely a very large decline in Q2. The latest virus outbreak calls that into question and adds to the reservations that we already had for growth in Q4.”

                              Full release here.

                              RBA Lowe: Cash rate highly likely to stay at 0.25% for some years

                                By
                                ActionForex.com
                                -

                                RBA Governor Philip Lowe reiterated the Board’s commitment on not raising interest rate until progress is made towards full employment, with confidence that inflation could sustain in 2-3% target range. He added that “, these conditions are not likely to be met for at least three years”. Hence, it’s “highly likely” that cash rate will be at the current 0.25% level “for some years”. The 3-year yield target of 0.25% also “reinforces this message”.

                                Lowe also note again that the negative interest rates are not justified by the cost benefits. He added, “in a world that is so uncertain and fluid, I don’t think it is prudent to rule it out”. But as seen in some European countries and Japan, “negative interest rates also encourage people to save more, not spend more”. So, “negative interest rates can become contractionary”.

                                He also noted that Australian Dollar’s exchange rate is not overvalued even though he’ like it to be lower. Huge amount of intervention is needed to push the Aussie down and it wouldn’t be a successful strategy.

                                Fed to collaborate with MTI on digital currency research

                                  By
                                  ActionForex.com
                                  -

                                  Governor Lael Brainard said Fed and MIT are working on a “multiyear effort to build and test a hypothetical digital currency oriented to central bank uses”.

                                  The objectives are “to assess the safety and efficiency of digital currency systems, to inform our understanding of private-sector arrangements, and to give us hands-on experience to understand the opportunities and limitations of possible technologies for digital forms of central bank money.”

                                  “Lessons from this collaboration will be published, and any codebase that is developed through this effort will be offered as open-source software for anyone to use for experimentation.”

                                  US initial claims dropped to 963k, below 1m for the first time since pandemic

                                    By
                                    ActionForex.com
                                    -

                                    US initial jobless claims dropped -228k to 963k in the week ending August 8, well below expectation of 1200k. Four-week moving average of initial claims dropped -86.3k to 1253k.

                                    Continuing claims dropped -604k to 15486k in the week ending August 1. Four-week moving average of continuing claims dropped -455k to 16170k.

                                    Full release here.

                                    Australia employment rose 11.47 in July, participation rate jumped

                                      By
                                      ActionForex.com
                                      -

                                      Australia employment rose 114.7k to 12.46m in July, better than expectation of 40k. It’s also a positive for full-time job to rise 43.5k to 8.55m. Part-time jobs rose 71.2k to 3.91m. Unemployment rate rose less than 0.1% to 7.5%, better than expectation of 7.8%, even though that’s a 22-year high. Participation rate also rose 0.6% to 64.7%.

                                      Still, Bjorn Jarvis, head of Labour Statistics at the ABS, said: “The July figures indicate that employment had recovered by 343,000 people and hours worked had also recovered 5.5 per cent since May. Employment remained over half a million people lower than seen in March, while hours worked remained 5.5 per cent lower. ”

                                      “The July data provides insight into the Australian labour market during Stage 3 restrictions in Victoria. The August Labour Force data will provide the first indication of the impact of Stage 4 restrictions.” Jarvis said.

                                      Full release here.

                                      RBNZ Bascand would consider more monetary stimulus if coronavirus and lockdown prolong

                                        By
                                        ActionForex.com
                                        -

                                        RBNZ Deputy Governor Geoff Bascand said resurgence of coronavirus infections is “a major risk to out outlook”. “If we get periods of resurgence and have longer lockdown periods then the unfortunate consequence of that is we will see downside risks to our outlook…things will be worse. We would have to consider doing more in terms of our monetary stimulus,” he said.

                                        While New Zealand has been doing better domestically, “this is a big economic shock and its not over,” he added. “It was a little bit of wonderful feeling when we had 100 days of containment, but its a long haul to recovery”.

                                        Separately, chief economist Chief Economist Yuong Ha said the central bank would like a weaker exchange rate and lower bond yields. The expansion of QE from NZD 60B to NZD 100B reflects that intention. Negative rate remains a policy option for RBNZ, but it’s not inevitable.

                                        Fed Kaplan: Resurgence in coronavirus muted economy recovery

                                          By
                                          ActionForex.com
                                          -

                                          Dallas Fed President Robert Kaplan said the resurgence in coronavirus has “muted the recovery” of the economy. While unemployment rate could fall to 9% or below by year end, “it requires adherence to protocols particularly wearing masks…If we don’t follow that, while people may feel freer, the economy will grow slower.”

                                          Boston Fed President Eric Rosengren also warned, “limited or inconsistent efforts by states to control the virus based on public health guidance are not only placing citizens at unnecessary risk of severe illness and possible death – but are also likely to prolong the economic downturn.”

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