Dollar Awaits Retail, Kiwi Hits Another High

[U][B]Talking Points[/B][/U]

  • Japanese Yen: consolidates at 122.50
  • New Zealand Dollar: Retail Sales blow past estimates
  • Euro: CPI data cooler than forecast
  • Pound; Regains 2.0300 after Bean comments
  • Dollar: Retail Sales on tap

[B][U]Dollar Awaits Retail, Kiwi Hits Another High[/U][/B]
A light event calendar kept trading quiet in overnight session tonight with the biggest fireworks coming from New Zealand where Retail Sales blew past estimates, printing at 1.2% vs. 0.5% expected. Strong wage growth and enhanced purchasing power from the ever rising kiwi helped fuel the gain which sent the currency to yet another multi-decade high as it hit a post reaction high of .7881. With an 8.00% yield - the highest in the industrialized world - the kiwi continues to attract massive capital flows from Japan much to the chagrin of the RBNZ officials whose very tepid attempt at intervention a few weeks ago clearly failed.
One of the more interesting recent developments in Asia Pacific has been the dichotomy in fundamental data between Australia and New Zealand over the past two weeks. Aussie results from retail sales to employment have been uniformly soft, while economic news from New Zealand continues to impress. The AUD/NZD cross which has been in a steady downtrend since May, appears to have found a near term bottom at 1.0950. However, should this pattern of divergent economic data persist further declines may be in the offing. Presently, the market appears to be overconfident about the possibility of more rate hikes from RBA, while under pricing the risk of additional tightening from RBNZ.
In UK today, BoE chief economist Charles Bean made a series of hawkish remarks, stating that central banks should maintain focus on headline inflation data rather than core readings in order to better anchor inflation expectations. The news suggests that the UK central bank will continue to pursue a tightening course especially in light of $70+/bbl oil which is bound to keep headline numbers elevated, making 6% UK short term rates a strong possibility by the end of this year. As a result of Mr. Bean?s remarks cable jumped 50 points quickly recapturing the 2.0300 level in early London trade.

Later today, attention will turn to US Retail Sales. Market expectations are subdued but have firmed slightly after yesterday?s better than forecast results from WalMart. There is little doubt that US consumers have curbed spending on big ticket items such as automobiles and home appliances, however, broader consumption may not have declined as much as the market anticipates. With employment growth providing modest support and weekly consumer sentiment reading showing improvement, consumer spending in June may have held up.
[U][B]FX Upcoming[/B][/U]