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By xemarketanalysis August 10, 2017 12:58 pm
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    XE Market Analysis: New Zealand Dollar Slides After RBNZ Warning


    •  Fed Vice Chairman, Dudley, said he expects U.S. inflation to increase over the medium term to 2%.
    • U.S. producer prices fell at the fastest pace in nearly a year.
    • U.K. RICS survey showed house price growth at its weakest in over 4 years.
    • U.K. trade deficit widened unexpectedly in June as exports fell almost 5%.
    • Japanese wholesale prices rose at a faster pace of 2.6% in the year to July. 
    • Norwegian consumer price inflation slowed to 1.5% in July.  


    The New Zealand Dollar plunged over 1% following the RBNZ’s rate decision where they kept rates on hold. The minutes showed central bank officials focused on the “need” for a lower exchange rate, and Assistant Governor, John McDermot, reminded markets that intervention was always an option. 




    The USD is broadly unchanged supported by Dudley’s comments that point to the Fed sticking to its path for another rate hike in December. After a dearth of economic data this week, tomorrow the release of consumer price inflation data for last month will be influential on market expectations for U.S. rate hikes. CPI is expected to show a slight reversal of the previous month’s dip, rising to 1.8%.



    The Pound has recovered only marginally from its recent lows versus most of its main trading counterparts on concerns over Brexit's impact on the U.K. economy of now and in the future. The economic data continues to paint a weak picture as industrial production rose 0.5% in June, but manufacturing was flat while exports fell, causing the trade deficit to widen unexpectedly. 



    The Euro is lower as the market slightly reassess their positioning of being overly long (betting it will rise) versus the Dollar. The strength of the U.S. labour market could still provide the Federal Reserve with enough confidence that inflation will return to their target to raise rates, while the ECB is set to maintain negative interest rates for the foreseeable. 



    The Loonie is consolidating around its multi-week lows above 1.27. Tensions over North Korea are front and centre and is causing an overriding earlier rise in the Canadian Dollar because of higher oil prices. Canadian rate expectations have softened from their late July highs with the market scaling back their outlook for the BoC rate path. 1.2730 will be an important level that the Loonie will need to hold onto to prevent further losses in USD/CAD towards 1.30.



    The Australian Dollar continues to edge lower as a combination of risk aversion and the RBNZ's warning over the strength of the Kiwi Dollar both weigh on the Aussie. With little sign that tensions are about to de-escalate, the Aussie could pull back further as investors look to protect their portfolios from the higher volatility Oz Dollar. 



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