HiFX Morning Update - July 20 2016

HiFX Morning Update - July 20 2016

The NZDUSD opens lower at 0.7050 this morning.

The NZD was sold off yesterday morning after the Reserve Bank of New Zealand surprised the markets for the second time in a week when it released a consultation paper proposing changes to loan-to-value restrictions (LVRs).

Broadly, the proposed changes include increasing the deposit required for residential property investors to 40% and 20% for owner-occupiers nation-wide.

The new restrictions would take effect on 1st September 2016 and are designed to further reduce the risk to financial stability from the current residential property price boom (or potential collapse).

NZ’s annual inflation rate is running at only 0.4% and has been well below the RBNZ’s medium term target of 2.0% for the past 5 years. At present, there does not seem to be a credible path back towards the target rate. For this reason, along with the newly announced LVR’s, we believe the RBNZ is pathing the way for a 0.25% cut in the Official Cash Rate (OCR) at its next meeting, held 11th August. This is likely to keep downwards pressure on the NZD, which would also please the RBNZ and assist in getting inflation back towards their target rate.

Fonterra’s Global Dairy Trade auction was conducted overnight. The average price achieved was unchanged from the previous auction, although the key Whole Milk Powder price rose 1.9%.

The AUD fell yesterday on the release of the Reserve Bank of Australia’s latest monetary policy meeting minutes which left the door open for another cut in the Cash Rate on the 2nd August.

The USD touched a 4-month high against a basket of currencies overnight after data showed US housing starts increased more than forecast. Recent data from the US has been encouraging, which is keeping alive the prospect of a rate hike from the US Fed before the end of 2016.

The GBP suffered yet again, despite higher than anticipated UK inflation, as the market continue to forecast the Bank of England will cut interest

There is no data scheduled on the domestic calendar today and little of great interest to be released overnight.

Global equity markets were mixed on the day – Dow +0.1%, Nikkei +1.4%, Shanghai -0.2 %, FTSE +0.0%, DAX -1.0%

Gold prices rose by 0.2% to USD$1,332 an ounce. Oil prices (WTI) fell 1.6% to USD$44.61 per barrel.

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