The Reserve Bank of New Zealand kept its Official Cash Rate unchanged at 3.50 percent for the second time but it also hinted on potential rate hikes in the future. Without mentioning any timeframe, the bank said, “We expect some further policy tightening will be necessary to keep future average inflation near the target 2 per cent midpoint.” The central bank noted that the local housing market is expected to cold down, amidst robust net migration. The next Monetary Policy Statement release would be on December 11 while the next interest rate announcement would be on October 30.
Meanwhile, there was a showdown of trade balance data this week. China’s Trade Balance came out much greater than forecast at CNY49.8 billion (CNY40.8 billion forecast). Germany also beat forecast with a EUR22.2 billion trade balance in July. On the other hand, trade balance of France and the UK came out weaker than anticipated, -EUR5.5 billion and -10.2 billion, respectively.
In Canada, the statistics bureau announced that July Building Permits was surprisingly strong. The 11.8 percent advance helped press prolong the two-digit gains for the third straight month
On the other hand, August Housing Starts was slightly weaker than anticipated at 192,000.
Gold toppled down this week. Price dropped $44 and broke through mentioned support at $1,240-$1,250 easily. Bears will get more excited and target $1,180-$1,200 next. Bulls should really prevent this from happening.
Oil reached new lows this week just like Gold, but the weakness in the former was less pronounced. Having said that, Oil is at risk of breaking a major support level at $90. If broken, this would open up a move toward $77-$86. Buyers must be careful not to catch a falling knife here.
EURUSD has finally shown some signs of life this by printing its first bullish weekly close in the past 9 weeks. Bulls need a lot of catching up to do as the pair has been down over 600 pips since July. First target is taking back control of the 1.3000 level. This level would be a major test for them.
GBPUSD opened up the week with a massive gap but the pair recovered well to close the week strongly in the black. Price needs to get back to 1.6500 to negate a lot of the bearish pressure that has built up in the last several weeks. At the same time, buyers must prevent a break of the 1.6000 level.
USDJPY was flawless this week as the pair closed in the black for five straight days and closed above the 107 level. The pair is now well above the multi-month resistance around 105.50. With the steep upclimb, we can now expect a decent retracement to at least the 106s.
The Week Ahead
Monday will be very brief and only showcase Australia’s New Motor Vehicle Sales; Switzerland’s PPI; US Empire State Manufacturing Index, Industrial Production, and Capacity Utilization Rate; Japan will observe Respect-for-the-Aged Day.
Tuesday will get quite busy starting with Australia’s Monetary Policy Meeting Minutes; UK’s RPI, PPI Input, CPI, and HPI; Eurozone and German ZEW Economic Sentiment; Canada’s Manufacturing Sales; US PPI and TIC Long-Term Purchases. BOC Governor Poloz will also give a speech.
Wednesday will begin early with New Zealand’s Current Account; Australia’s MI Leading Index; Italy’s Trade Balance; UK Claimant Count Change, Jobless Rate, MPC Asset Purchase Facility and Official Bank Rate Votes; Eurozone Final CPI; and US CPI, NAHB Housing Market Index, Current Account, FOMC Statement, Federal Funds Rate, and Economic Projections.
Thursday will be equally busy with New Zealand’s GDP; Switzerland’s Libor Rate and SNB Monetary Policy Assessment; UK Retail Sales, CBI Industrial Order Expectations, and Scottish Independence Vote; ECB’s Targeted LTRO; Canada’s Foreign Securities Purchases; US Jobless Claims, Building Permits, Housing Starts, Philly Fed Manufacturing Index, and Fed Chair Yellen’s speech.
Friday ends the week very quietly with only Canada’s Consumer Price Index and Wholesale Sales in the main cards.