USD’s freaky Friday?
By Peter Rosenstreich
The greenback might be in for a sharp, sudden recovery. On Friday 29 September, the US government’s Bureau of Economic Analysis will report ‘personal consumption expenditures’ (PCE) for August. If this looks inflationary – 1.5% or higher – look out! This would likely trigger the US Federal Reserve to reprice the yield curve, sending yields and therefore the USD higher.
Meanwhile, followers of ‘Fed Speak’ will be on call today, as the central bank’s Chair Janet Yellen speaks in Cleveland, Ohio, at 12.45 local (Eastern) time. We expect a repeat of her comments last week, after the Fed’s Open Market Committee meeting, which were hawkish enough for markets to price in a December rate hike at 60% probability.
Inflation should by all accounts be on the up. This makes trading precarious since a reflection point could happen anytime – perhaps after Friday’s PCE announcement. For now, the US front-end rally has stalled, with 2-year yields stuck at 1.40%. The USD/Euro spread continues to tick higher, creating headwinds from EUR/USD.
Kiwi sliding on hung election
By Arnaud Masset
The New Zealand dollar fell 0.6% against the greenback to $0.7215, as buyers fretted about the country’s hung parliament and an attendant slump in business confidence. Business confidence tumbled to zero, the lowest level since September 2015, compared to 18.3 in August. The drop came amid a significant deterioration of expected business conditions, especially in the manufacturing industry.
New Zealand’s Business Confidence Index plunged on Tuesday to zero, down from levels of 18.3 and 19.4 in August in July. Surely this was accelerated by Saturday’s election, which yielded no clear winner. The ruling National Party won only 46% of the vote, while the opposition (Labour and Greens) earned only 42%. A resolution will take at least several weeks, as both sides try to win over the NZ First Party for a coalition.
This is taking the steam out of the Kiwi’s rally. Net long non-commercial futures positions accounted for roughly 63% of total open interest in early August. As of last week, this number decrease to 18%. Key support for the NZD can be found at $0.7146 USD (200-day moving average), while on the upside 0.73 will act as main short-term resistance. A return towards $0.70 cannot be ruled out, especially now that the US Federal Reserve is likely to tighten money in December.