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MARKET ANALYSIS 11/09/14

Kiwi dropped to its lowest level since February after the Reserve Bank of New Zealand left the official cash rate unchanged at 3.5% as expected. The dip came after RBNZ Governor Graeme Wheeler repeated that the exchange rate has yet to adjust materially to the lower commodity prices. Its current level remains unjustified and unsustainable and further depreciation is expected particularly when the US Fed starts raising rates. In order to assess the impact of the recent rate hikes and the reductions in export prices, the Bank softened its stance on future interest rate increases for a period of “monitoring and assessment”.

Chinese CPI rose at a slower pace of 2.0% yoy in August from 2.3% yoy in July, missing forecast of 2.2% yoy. The nation’s inflation eased to a four-month low, adding to signs of weakness in domestic demand shown from the drop in imports earlier this week. The PPI rate fell at an accelerating pace of -1.2% yoy from -0.9% yoy, worse than market consensus. This amplifies the case for additional measures to support the Chinese economy.

The Australian dollar strengthened after the country’s unemployment rate declined from its 12-year high. The bigger-than-expected decline to 6.1% in August from 6.4% previously, pushed AUD up against the greenback.

The British pound gained against the greenback after the hearing of Bank of England Governor Carney and other MPC members on the August inflation report to the Treasury Select Committee. GBP strengthened as Governor Carney said that as the UK economy continues to normalize, the Bank will need to start to raise interest rates to achieve its inflation target. On the uncertainty surrounding the Scottish referendum, the Governor said that the Bank has contingency plans for the Scottish independence and they will certainly implement them if required. Despite the assurance of existing plans, we believe that the negative sentiment towards the pound has been entrenched and only after the referendum we could see a change in investors’ view.

The Swiss franc plummeted on Wednesday after an alternate member of the Swiss National Bank Governing Board said that negative interest rates remain as an option for the Bank. His remarks were consistent with SNB President Thomas Jordan who repeatedly argued that the central bank won’t exclude any measures to secure adequate monetary conditions in Switzerland. CHF has recently moved toward the 1.2000 floor against the Euro as the bloc’s single currency weakened in last weeks. The plunge in Swiss franc may be attributed to the fact that investors “realized” that the Bank may use other methods than its official reserves to support the floor and this could be announced at SNB September 18 meeting.

Today, we get the German final CPI for August. As usual, the final forecast is the same as the initial estimate. French CPI for the same month is also coming out.

From Sweden, we get the PES unemployment rate, the official unemployment rate and the country’s CPI, all for August. Both unemployment rates are expected to rise, while the CPI is forecast to drop 0.1% yoy, from 0.0% yoy. The weak data coming from the country ahead of the general election this Sunday, could add to the growing body of evidence that Sweden’s recovery is losing momentum.

In the US, we get the initial jobless claims for the week ended September 6.

From Canada, the new housing price index for July are forecast to have accelerated.

We have one speaker on Thursday’s agenda. ECB President Mario Draghi delivers the keynote speech at the Eurofi financial forum in Milan.

Thursday, 11 Sep, 2014 / 7:49

Source : http://www.ironfx.com/en/research-and-analysis/fundamental-analysis_11_09_2014

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