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MARKET ANALYSIS 25/09/14

Kiwi’s current level is “unjustified and unsustainable” The Reserve Bank of New Zealand in a statement released today said that, it considers the current level of the exchange rate “unjustified and unsustainable” and that further downward adjustment is expected despite the recent strong selling pressure. The kiwi plunged to its lowest level against the dollar since September 2013 and could fall even more in the following months. Among the factors that can cause further depreciation are New Zealand’s declining commodity export prices, the slowdown in China’s economic growth and the stronger outlook for the US economy, amid expectations that the Fed might begin tightening monetary policy sooner than is currently expected. The combination of these factors makes the New Zealand dollar susceptible to significant adjustment over the coming months.

The Australian dollar also declined and reached its lowest level since early February, as the currency came under renewed downside pressure caused mainly by kiwi. Aussie extended its declines after the Reserve Bank of Australia Governor Glenn Stevens said the Bank considers the introduction of measures to limit lending to speculative investment in the country’s overheating housing.

The dollar index, which measures the dollar’s value against a basket of six currencies hit a four-year record high, partly due to strong US housing data released on Wednesday.

Chinese central bank Governor may be replaced amid a personnel reshuffle taking place in the wake of wide-ranging economic reform. The top contender to head the People’s Bank of China, is considered to be a former banker and securities regulator. China’s economy has staggered in recent months and it is at risk of falling short of the government’s 7.5% growth target. The possible appointment of a former banker could raise investors’ expectations for further loosening of monetary policy in order to stimulate the economy and to achieve the growth target.

Today’s data: During the European day, the key event will be the speech by the ECB President Mario Draghi titled “Single market, single currency, common future”. We could see some interesting remarks on euro’s future at this speech. Eurozone’s M3 money supply is forecast to have risen 1.9% yoy in August, from 1.8% yoy in July. This will push the 3-month moving average to accelerate if the forecast is met.

In Sweden, the country’s PPI for August is coming out but no forecast is available. Nevertheless, a low reading could add to the concerns over the country’s deflationary risk.

Later from the US, durable goods orders for August will take center stage. The headline figure is forecast to drop 18.0% mom, from +22.6% mom in the previous month. On the other hand, durable goods excluding transportation equipment are estimated to rise on a mom basis, a rebound from July’s print. The forecast of the huge turnaround in the headline figure, is from its biggest gain on record in July to its biggest drop ever if the forecast is met. The preliminary Markit service-sector PMI for September is anticipated to have declined a bit but to remain in relatively high levels. The preliminary composite figure is also coming out. Initial jobless claims for the week ended September 20 are also due out.

Beside ECB President speech, we have two more speakers on Thursday’s agenda. Bank of England Governor Mark Carney and Atlanta Fed President Dennis Lockhart speak.

Thursday, 25 Sep, 2014 / 9:25

Source : http://www.ironfx.com/en/research-and-analysis/fundamental-analysis_25_09_2014

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