New Zealand Producer Prices jumped sharply higher in the three months to June, registering the biggest quarterly jump in 28 years. The minutes from the last monetary policy meeting of the Reserve Bank of Australia further advanced the case for rate cuts in the near term. The data scheduled for the forthcoming European session will offer further incentive for the European Central Bank to act on interest rates in the near term. The Bank of Japan met expectations, keeping borrowing costs at 0.50%.
[B][U]Key Overnight Developments[/U]
• New Zealand PPI Jumps Higher in the Second Quarter on Record Energy Costs
• Australia’s Central Bank Again Says Rate Cuts To Start Sooner, Not Later
[U]Critical Levels[/U][/B]
The Euro settled in a tight range overnight having failed to hold above the 1.47 level. DailyFX Chief Strategist Jamie Saettele expects the Euro to correct to 1.4900 before an eventual decline to 1.4431. Near-term support remains at 1.4650. Sterling advanced higher, grinding up to 1.8660 having concluded US hours just above 1.86. Support remains at 1.8532, with resistance at 1.8920.
[B][U]Asia Session Highlights[/U][/B]
New Zealand [B]Producer Prices[/B] jumped sharply higher in the three months to June, registering the biggest quarterly jump in 28 years. Writing in the Forex Trading Weekly Forecast report last week, we noted that “Producer prices will likely advance higher, reflecting higher commodity costs in the three months to June.” Indeed, energy costs dominated as the catalyst for the upward push, suggesting some moderation in the metric can be expected in the next release as the recent selloff in crude oil is taken into account. The release failed to stir NZDUSD price action as traders are already pricing in 150 basis points worth of monetary easing before the end of the year.
The minutes from the last monetary policy meeting of the [B]Reserve Bank of Australia[/B] further advanced the case for rate cuts in the near term. Most tellingly, policymakers asserted that “less restrictive conditions could soon be called for…a case could be made for an early reduction in the cash rate.” The market did not react strongly to the release, having already heard RBA Deputy Governor Ric Battellino tell a Parliamentary committee last week that “we cannot wait to see a fall in inflation before we start cutting rates, because by then it would be too late.”
The [B]Bank of Japan[/B] met expectations, keeping borrowing costs at 0.50%.
[B][U]Euro Session: What to Expect[/U][/B]
The data scheduled for the forthcoming European session will offer further incentive for the European Central Bank to act on interest rates in the near term. Germany’s [B]Producer Price Index[/B] is expected to see the monthly growth rate decline, tracking the selloff in crude oil to register at 0.7% in July from 0.9% in the preceding period. The German edition of the [B]ZEW Survey[/B] of analyst sentiment is expected to see a bit of an improvement to print at -62.8 August from -63.9 in July. That said, the metric would still tread closely to record lows unseen since 1992. The overall Euro-Zone edition of the survey is seen declining further to -65.5 in August from -63.7 in the previous month. With cheaper oil helping to slowly ease inflationary, Jean-Claude Trichet and company could have room for a rate cut as soon as this year. The markets are currently pricing in 36.9 basis points of easing in the next 12 months.
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