Crude oil sharp decline resumes as investors focus on Chinese tariffs
By Vincent Mivelaz
API estimates and lower inventories from the EIA (-1.35 million barrels vs a consensus of 2.16 million) for the week ending 3 August, plus US sanctions on export goods (ex oil products), failed to impress the market in a sustained way. Brent Crude and West Texas Intermediate intraday prices reached $74.65 and $69.17 before plummeting below 100 DMA (Day Moving Average).
Indeed, the focus is now on the 25% Chinese duties slapped on $ 16 billion of energy products, including gasoline, diesel and other oil-based products, a first move of the kind in the global energy sector. The decision takes effect on 23 August.
Accounting for 20% of total US oil exports (17.6 million barrels in May), China currently remains the largest importer of US crude oil, a trend that could change drastically in the coming weeks and months as the country's main energy companies are ramping up production in an attempt to satisfy domestic demand.
Accordingly, the recent decline in oil prices seems overstated. The short-term bearish impact is expected to dissipate, with global energy demand remaining robust. Trading below 50 and 100 DMAs, WTI is expected to rebound in the short-term, approaching the $68.50 range (along 23.6% Fibonacci retracement).
RBNZ sends the Kiwie lower
By Arnaud Masset
After extending gains on hopes that the RBNZ would be more positive on the inflation outlook, the Kiwi fell sharply on Thursday morning and reached its lowest level in more than two years (lowest since March 2016). After climbing as high as $0.6762 yesterday, NZD/USD slid 1.33% this morning to $0.6655, following the adoption of a more dovish stance by the Reserve Bank of New Zealand. The monetary institution maintained the Official Cash Rate at a record low 1.75%, as broadly expected. However, investors didn't expect that Governor Adrian Orr would delay the timing for the next rate hike. The RBNZ is now expected to wait until the third quarter of 2020, which corresponds to a one-year delay compared to the May forecast. In addition, Orr said that the RBNZ is leaving the door open for a rate cut, should the situation warrant it.
The RBNZ's dovish turn wasn't expected by most market participants, which explains why the Kiwi is having a rough day. Nevertheless, Governor Orr also said that the RBNZ was finally "pleased" with the current level of the Kiwi, which suggests that the downside is limited. In the medium-term, we do not rule out further Kiwi weakness towards the 0.66-0.65 support area. But we remain positive in the longer-term as we believe the Kiwi is approaching oversold territory.