RBNZ kept rates unchanged, UK inflation higher than expected (at 6.8%), US stocks, Crude and metals lower

Previous trading day events – 16 August 2023

• On Wednesday, the Official Cash Rate (OCR) was held steady at 5.5% by the Reserve Bank of New Zealand (RBNZ). The OCR needs to stay at restrictive levels, they said.

  • "The committee agreed that the OCR (official cash rate) needs to stay at restrictive levels for the foreseeable future to ensure annual consumer price inflation returns to the 1% to 3% target range," the bank said in its policy statement. 

  • The New Zealand economy is evolving broadly as anticipated but the cash rate would need to remain at around its current level of 5.5% to meet its inflation and employment objectives. The RBNZ has a 40% chance of a further 25 basis point hike to 5.75% in 2024, according to the monetary policy review (MPR). The rate hikes have sharply slowed the economy now in a technical recession following two quarters of negative growth.

  • Its track now indicates that it does not expect to cut until the first half of 2025, much later than expected by economists, who had forecast cuts to begin in the second quarter of next year.

  • New Zealand's annual inflation is currently 6.0%, with expectations it will return to the central bank's 1% to 3% target by the second half of 2024.

  • Paul Bloxham, chief economist for HSBC in Australia and New Zealand, said: "Economic activity has clearly slowed, even if it does have a bit more momentum than expected, and the economy is dis-inflating. In addition, the full impact of the monetary tightening already delivered is still to pass through to the economy," he said in a research note.

• Yesterday’s CPI data caused volatility for the GBP pairs as the annual inflation rate for the U.K. was reported lower but higher than expected. The figure is not lowering significantly and so the worries about persistently high inflation in the U.K. grew further. The annual consumer price inflation rate was reported at 6.8%, down from June's 7.9%, as the Office for National Statistics said. Core inflation, which excludes energy and food prices, remained at 6.9%, unchanged from June.

  • The strength in core inflation is bad news. The market expects rate hikes to continue and reacts with GBP appreciation. 

  • "With only four months to go, it no longer seems at all clear that inflation at the end of the year will have fallen by enough to achieve it," said Heidi Karjalainen, an economist at the Institute for Fiscal Studies, a think tank.

  • "With wage growth and services inflation both stronger than the Bank had expected, it seems clear that the Bank has more work to do," said Ruth Gregory, an economist at consultancy Capital Economics.

Winners vs losers

News reports monitor – Previous trading day (16 August 2023)

Server Time / Timezone EEST (UTC+03:00).

1. Midnight – Night session (Asian)

The Reserve Bank of New Zealand decided to leave the Cash Rate unchanged, at 5.5%. They assessed that headline inflation and inflation expectations have declined while data regarding core inflation remain too high. There is a risk that the measures taken to counter inflation might not take effect soon, however, policymakers are confident that interest rates remaining at a restrictive level currently will bring inflation down to the target levels. The release had no major impact on the market. 

2. Morning – Day session (European and N.American session)

The U.K. CPI data caused an intraday shock and high volatility at 9:00. The annual inflation rate was reported lower, at 6.8%, but higher than the expected 6.7%. Even though the figure is lower than the previous, the market is expecting rate hikes to continue and the reaction was GBP appreciation. GBPUSD moved near 60 pips during that time. 

Crude oil inventories were reported negative at -6.0M which is considered a high figure. A decline of 6 M barrels for last week while the previous week the figure was 5.9M. Quite volatile changes for a volatile price path. The Crude price started to drop after the release as a reaction to the news and now is trading at near 79.10.

The FOMC Meeting Minutes report release had not much impact. Economic resilience and a further easing of inflation pressures were recorded recently, however, most members were concerned about inflation risks. 

General verdict

Forex markets monitor

GBP/USD (16.08.2023) chart summary

Server Time / Timezone EEST (UTC+03:00).

Price movement

The GBPUSD moved to the upside after 9:00 since the GBP experienced appreciation from the CPI data release. Soon after it found resistance, it retraced back to the 30-period MA and continued on a sideways but volatile path around the mean. 

Equity markets monitor

NAS100 (NDX) 4-day chart summary

Server Time / Timezone EEST (UTC+03:00).

Price movement

NAS100 clearly shows high volatility, just like the other benchmark U.S. indices. The indices have been on the upside for quite a while recently but eventually, the U.S. stock market was hit by the Fitch and Moody’s Ratings causing it to crash intraday several times. Important support at the 14972 level has been broken yesterday and the index moved further downwards. This might be a signal that a future downward trend is more probable. 

Commodities markets monitor

US Oil (WTI) 4-day chart summary

Server Time / Timezone EEST (UTC+03:00)

Price movement

Crude reversed from the previous strong upward trend and now moves lower and lower breaking important support levels. The path is steady and under the 30-period Moving Average. It is currently testing the 78.60 USD/b level. 

XAU/USD (Gold) 4-day chart summary

Server Time / Timezone EEST (UTC+03:00).

Price movement

As the USD is gaining strength, we see Gold moving lower and lower. A downtrend is apparent, the MA is obviously going down. It broke the 1900 USD/oz and even dropped until 1896 USD/oz before reversing quickly on the 15th of August. As the USD strengthened more yesterday, Gold dropped further to the strong support of 1890 USD/oz. No signs of reversing are apparent. 

News reports monitor – Today trading day (17 Aug 2023)

Server Time / Timezone EEST (UTC+03:00).

1. Midnight – Night session (Asian)

The Labour data for Australia was reported at 4:30 and showed that Australia's unemployment rate has risen to 3.7% for July, up from 3.5% in June. Meanwhile, the employment change was actually negative, -14.6K, which is a huge decline. The AUD had depreciated greatly at that time but the shock was not great. The AUDUSD only fell near 30 pips before retracing back to the mean. 

2. Morning – Day session (European and N.American session)

The U.S. Unemployment Claims are going to be released at 15:30. The expected figure is not far from the previous 240K, and it is quite normal to expect that since the U.S. labour market shows resilience enough. A possibility for an even smaller figure exists since inflationary pressures are too high driven by strong demand.

General verdict

• USDJPY has managed to get to the top with 1.05% gains this week. It is also leading this month with 2.82% gains so far.

• Metals to the bottom of the list since the USD strengthens further.

• Intraday shock for GBP pairs at 9:00 and high volatility since the European session started

• The FOMC Meeting Minutes report had no major impact, no shock.

• DXY moved higher overall. Oil and Gold fell as USD strengthened further. 

• U.S. indices are moving lower and lower.

• Not many important releases but we are expecting a shock for the USD pairs at 15:30. 

• More volatility and steady movements in one direction are more probable in the absence of shocks.

• U.S. stock market activity is expected to be high, thus indices might create trading opportunities after the NYSE opening.