RBNZ Shows RBA How It’s Done

• Aussie dollar slides to fresh lows on RBNZ comments on Kiwi dollar strength;
• Sterling finds support after Carney comments but struggles to hold ground;
• Greenback strength prevails as investment banks signal further strength.

Aussie dollar losses were initiated by comments from the Reserve Bank of New Zealand yesterday after Governor Graeme Wheeler cited the ‘unjustified and unsustainable’ level of the Kiwi dollar and appears to have been far more successful in his attempts to jawbone his local currency than his neighbours at the Reserve Bank of Australia. As the Aussie bears remain in full force with traders selling the Aussie given any opportunity. Both currencies were dumped throughout yesterday’s sessions, the Aussie dollar only coming out on top against the Kiwi dollar which continues to feel the pressure following dairy producer Fonterra cutting its forecast payout to dairy farmers by nearly 12% as China demand continues to falter. This morning AUDUSD opens below $0.88 and NZDUSD is trading at its lowest level in 12 months.

Comments made by Mark Carney as he spoke in Wales yesterday signalled that the case for raising interest rates has become ‘more balanced’ causing an immediate reaction in currency markets. Sterling jumped against most major peers but once again struggled to make any ground against a firm Greenback as markets continue to price in a US rate hike ahead of the UK. The Deputy Governor of the Bank of England somewhat reduced the burden that Mark Carney has previously placed on lack of wage inflation, suggesting that built up pay pressure may eventuate in a surge in wages and if productivity can’t keep up with wage growth, inflationary pressure may be inevitable. Comments have certainly led to increased UK rate hike speculation but markets have been let down by BoE comments before and Sterling was quick to retrace from its daily highs.

After a number of US investment banks predicted that the Federal Reserve will raise interest rates before its peers, the Greenback has remained in front as Central Bank divergence continues to widen. Durable goods and jobless claims data was largely in line with expectations overnight causing EURUSD to trade below $1.27 for the first time in 4 years. The dollar did however struggle against a broadly stronger Japanese Yen following comments from Japanese health minister that there is no urgency in making changes to public pension funds which would eventuate in money leaving the Japanese economy and increase overseas investment. The Bank of Japan continues to be faced with the dilemma of a rapidly weakening currency and the effects that has on consumers who are largely reliant on fuel imports, and the need to increase net exports to aid economic recovery. The BoJ remain committed to using unprecedented amounts of stimulus to aid growth leading us to believe that traders will continue to buy the dips in USDJPY.