Global Themes


Kiwi rally snuffed out as USD regains strength

Sectoral Factor Model makes brief appearance
NZ CPI data released yesterday came in below expectations: 0.4% q/q vs 0.5% q/q. Despite the underwhelming figure the NZD continued on to rally briefly on the release of a, somewhat spurious, metric - The Sectoral Factor Model. The Sectoral Factor Model separates components of the CPI into tradables and non-tradables. By distinguishing between these two sectors, the prices of which are widely regarded as being influenced by different things, the model allows an interpretation of what is driving core inflation.

Almost as if willing the the NZD to go higher, markets cited the positive tidings of this model as a reason for the NZD rallying to a high on the day of 0.6840. In truly fleeting fashion however the NZD fell away again overnight, right back to trading ranges yesterday - opening this morning at 0.6775. These odd bouts of volatility, expected or not, are the perfect example of where market orders can be beneficial to take advantage of momentary spikes in rates.

US Economy heating up
Fed chair Powell advocates steady rate hikes
Jerome Powell indicated this morning the Fed's intention to continue to gradually increase interest rates in accordance with their inflation-management edict. Adding to the US positive sentiment, Powell noted inflation as being around the Fed's 2 percent target and unemployment being at near 18 year lows, with employers adding 1.3 million new jobs in the first six months of 2018.

While the US economy is moving along as expected, Powell's tone suggests it is unlikely there will be any additional rate hikes beyond the two that are largely expected for the remainder of the year. He noted that if they were to raise rates too rapidly the economy could weaken, causing inflation to run below expectations.

As the US economy gains pace importers, and exporters alike, may look to consider a new range for pricing so as to avoid painful margin erosion.

The week ahead
UK Inflation tonight, AU Job numbers tomorrow

8.30pm UK CPI
midnight US Building permits

1.30pm AU Job numbers
8.30pm UK Retail sales

Deliver the Daily Currency Market Analysis to my Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots