New Zealand Dollar trades broadly higher after RBNZ’s rate hike today. But trading is mixed in other currencies. Commodity currencies are generally on the soft side for the week, but there is no follow through selling. Dollar is still the strongest, but it’s struggling to extend the near term rally. Yen attempted for a bearish reversal, but there is no follow through selling. Sterling is firming up as UK inflation data is awaited, but it’s mixed together with Euro and Swiss Franc. Overall, most major pairs and crosses are stuck inside last week’s range.

Technically, EUR/GBP’s decline suggests that the recovery from 0.8338 might have completed at 0.8491. Deeper fall is mildly in favor towards 0.8338 low and possibly a break below there to resume the decline from 0.8720. The question is, if that’s happening, whether it would be accompanied by deeper fall in EUR/USD towards 0.9951 low, or a bounce in GBP/USD back to 1.2292 minor resistance.

In Asia, at the time of writing, Nikkei is up 1.08%. Hong Kong HSI is up 0.98%. China Shanghai SSE is up 0.34%. Singapore Strait Times is up 0.43%. Japan 10-year JGB yield is up 0.0121 at 0.182. Overnight, DOW rose 0.71%. S&P 500 rose 0.19%. NASDAQ dropped -0.19%. 10-year yield rose 0.033 to 2.824.

RBNZ hikes 50bps, monetary conditions needed to continue to tighten

RBNZ raises the Official Cash Rate by 50bps to 3.00% as widely expected, as “core consumer price inflation remains too high and labour resources remain scarce”. It also maintains hawkish bias as “committee members agreed that monetary conditions needed to continue to tighten until they are confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range.”

The central bank noted domestic spending has “remained resilient”, supported by a “robust employment level, continued fiscal support, an elevated terms of trade, and sound household balance sheets in aggregate.” Production is being “constrained by acute labour shortages”, heightened by seasonal illnesses and COVID-19. Spending and investment continues to “outstrip supply capacity”. Wage pressures are “heightened”. A range of indicators highlight broad-based domestic pricing pressures.

NZD/USD bounces after RBNZ hike, drawing support from HnS neckline

NZD/USD recovers notably after RBNZ rate hike, but stays in range below 0.6467 temporary top. Outlook is staying bullish for now, as NZD/USD is trying to draw support from head and shoulder neckline (ls: 0.6195, h: 0.6059, rs: 0.6211), as well as 55 day EMA (now at 0.6323). Another rise is in favor through 0.6467, sooner rather than later.

Either as a corrective rebound, or part of an up trend, rise from 0.6059 should target 0.6575 resistance zone, which is close to 38.2% retracement of 0.7463 (2021 high) to 0.6059 at 0.6595.

However, another decline, and sustained trading below 55 day EMA will invalidate this view and bring retest of 0.6059 low instead.

Japan export rose 19.0% yoy in Jul, imports rose 47.2% yoy

Japan exports rose 19.0% yoy to JPY 8753B in July, with gains led by auto shipments to US and chips to China. Imports rose 47.2% yoy to JPY 10190B, driven by higher costs of crude oil, coal and liquid natural gas. Trade deficit came in at JPY -1437B. July’s figure marked a full straight year of monthly trade deficits, the longest streak since the 32-month run to February 2015.

In seasonally adjusted terms, exports rose 2.1% mom to JPY 8437B. Imports rose 3.5% mom to JPY 10570B. Trade deficit widened to JPY -2133B.

Looking ahead

UK CPI and PPI, Eurozone GDP and employment change will be released in European session. Later in the day, US retail sales and business inventories will be published, and then FOMC minutes.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2031; (P) 1.2075; (R1) 1.2141; More…

Intraday bias in GBP/USD remains neutral as it’s still bounded in range of 1.2002/2292. On the downside, break of 1.2002 minor support will argue that rebound from 1.1759 has completed, after rejection by 55 day EMA. Intraday bias will be back on the downside for retesting 1.1759 low first. Break there will resume larger down trend. On the upside, above 1.2922 will resume the rebound from 1.1759 towards 1.2666 resistance.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2666 resistance holds. Next target is 1.1409 low. However, firm break of 1.2666 will bring stronger rise back to 55 week EMA (now at 1.2897).

Economic Indicators Update