Kiwi bounces off CPI, dollar and yen weakened by risk sentiment

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Commodity currencies are generally stronger today following the rebound in risky markets. The New Zealand Dollar is leading the way, further supported by a stronger than expected consumer inflation reading. There are talks that RBNZ will opt for a bigger hike than before at the next meeting. The dollar, euro and yen are currently the worst performers, followed by the Swiss franc, while the pound sterling is mixed.

Technically, while NZD/USD is rallying noticeably, it is holding well below the resistance at 0.5812. Thus, the short-term outlook remains bearish for another drop through 0.5511 at a later stage. AUD/USD is also held well below the corresponding resistance at 0.6539 while USD/CAD is holding well above the support at 1.3501. It is too early to declare a turnaround in these three.

In Asia, at the time of writing, the Nikkei is up 1.47%. Hong Kong’s HSI index is up 1.33%. China Shanghai SSE is up 0.34%. Singapore Strait Times is up 0.07%. Japan’s 10-year JGB yield is down -0.0015 to 0.251. Overnight, the DOW rose 1.86%. The S&P 500 rose 2.65%. The NASDAQ rose 3.43%. The 10-year yield rose from 0.005 to 4.015.

RBA minutes: case for a small hike 25 basis points stronger

Minutes of the RBA’s Oct. 4 meeting revealed that members “carefully considered two options” for rate hikes of 50 basis points and 25 basis points. Arguments for a 25 basis point hike “were based on risks to global and domestic growth, and the possibility that inflation could decline rapidly.”

Wage growth had “not reached levels that would be incompatible with the inflation target”. External inflationary pressures “could ease quickly as the global outlook has deteriorated”. There was also an argument to slow down for a while to “assess the effects of significant interest rate increases to date.”

RBA said the arguments for the two options were “finely balanced”, with the case for a 25 basis point hike stronger. “A smaller increase than agreed at previous meetings was warranted given that the cash rate had been significantly increased in a short time and the full effect of this increase was yet to come.”

At the meeting, RBA raised the cash rate target by 25 basis points to 2.60%.

RBA Bullock: We meet more frequently than most of our peers

RBA Deputy Governor Michele Bullock acknowledged in a speech that some commentators contracted the 24 basis point hike in October with those at other central banks rising in larger increments.

“It partly reflects our particular economic situation,” she said. “But it’s also relevant that the board meets more frequently than most of our peer central banks.”

The RBA “takes monetary policy decisions 11 times a year, so it regularly discusses data on the economy and has more flexibility on the size and timing of rate increases…The gradual change in the policy rate during recent meetings has been weaker than other major central banks. However, our policy rate path has been as steep, if not steeper, than other central banks.”

The Fed and the ECB hold monetary policy meetings 8 times a year.

New Zealand CPI up 2.2% YoY in Q3, annual rate at 7.7% YoY

New Zealand’s CPI rose 2.2% qoq in the third quarter, well above expectations of 1.6% qoq. Annual inflation slowed from 7.3% y/y to 7.2% y/y, but beat expectations of 6.6% y/y.

The quarterly price increase was mainly influenced by the food group and the housing and utilities group. Vegetable prices rose 24% in the quarter, the strongest since the series began in 1999.

The main driver of annual inflation was housing and household utilities due to rising construction prices, housing rents and local government tariffs.

Japan Suzuki: We cannot tolerate excessive currency movements driven by speculators

Japanese Finance Minister Shunichi Suzuki told reporters today: “We cannot tolerate excessive currency movements driven by speculators. We are watching currency movements closely with a sense of urgency.

Suzuki then told parliament the government was ready to take action “decisively” and “we intervened in the currency markets (last month)”.

“Generally, there are times when we step in by making announcements and other times when we don’t,” Suzuki said.

BoJ Governor Haruhiko Kuroda told parliament: “The recent sharp drop in the yen, coupled with rising commodity prices, has pushed prices up in Japan.” “Consumer inflation is expected to pick up towards the end of the year before slipping below 2% next year,” he added.

Look forward

Germany ZEW economic sentiment is the main feature of the European session. Later in the day, Canada will release housing starts. The United States will release industrial production and the NAHB housing index.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 145.14; (P) 145.93; (R1) 147.49; After….

The breakout of the EUR/JPY resistance at 145.62 confirms the resumption of the uptrend. The intraday bias remains to the upside for a 100% projection from 133.38 to 145.62 from 137.32 to 149.56, which is near the long-term resistance at 149.76. On the downside, minor support below 144.58 will make the intraday bias neutral and bring consolidations first, before staging another rally.

Overall, the uptrend from 114.42 (2020 low) is still ongoing for 149.75 (2014 high). A decisive break will open the way for a 161.8% projection from 114.42 to 134.11 from 124.37 to 156.22. This will now remain the preferred case as long as the support at 137.32 holds.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
21:45 NZD CPI Q/Q Q3 2.20% 1.60% 1.70%
21:45 NZD CPI A/A T3 7.20% 6.60% 7.30%
00:30 USD RBA Meeting Minutes
09:00 USD Germany ZEW Economic Sentiment Oct -66 -61.9
09:00 USD Germany ZEW Current situation Oct. -69 -60.5
09:00 USD Eurozone ZEW Economic Sentiment October -60.6 -60.7
12:15 BODY Housing Starts Y/Y Sep 262K 267K
13:15 USD Industrial production H/H sept. -0.10% -0.20%
13:15 USD Use of ability seven. 80.00% 80.00%
14:00 USD NAHB Housing Market Index Oct. 43 46
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