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RBNZ Talks Down the Kiwi

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Of the three speeches by central bank chiefs yesterday, only the Pound was moved significantly with some help from a worse than expected US Durable Goods Orders figure – rallying half a cent. Speeches by RBA Governor Glenn Stevens and ECB President Mario Draghi did not provide anything new for traders to get excited over, though Stevens did discuss macro-prudential controls as an alternative to interest rates to fight out of control housing speculation.

US data has been the main focus to close out a quiet week; New Home Sales surprised to the upside on Wednesday with a reading of 504,000 versus analyst expectations of 432,000; Durable Goods Orders conversely surprised to the downside, with a decline of 18.2% – the figure is not as bad as it appears, given that last month saw a large increase due to aircraft orders and the large month on month decline is strongly affected by this. There were no surprises in the employment data, with Unemployment Claims coming in as-expected at 293,000 in line with trend. US Final GDP will be announced tonight to round out the week; the figure is for Q2 2014 and will be expected to show growth of around 4.6%.

The New Zealand dollar fell sharply on comments by Graeme Wheeler, the head of the RBNZ:

“The Bank’s analysis indicates that the real exchange rate is well above its sustainable level, and also above levels justified by short-term business cycle factors,”

“Unjustified and unsustainable are important considerations in assessing whether exchange rate intervention is feasible. Another consideration is whether conditions in the foreign exchange markets are conducive to intervention having an impact on the exchange rate.

“The real exchange rate has not adjusted materially to the recent downward movement in commodity prices. For example, global dairy prices have fallen by 45 percent since February 2014. Despite this, in August, New Zealand’s real effective exchange rate was 1 percent higher than its February 2014 level.”

The NZD has fallen one and a half cents following the statement, and now sits at 0.7930
The German Ifo Business Climate survey showed a decline and a miss of expectations, falling to 104.7 against expectations of 105.9. While not a crucial data point in the grand scheme of things, the poor reading is another in a long line indicating that the ECB needs to do more to combat the Euro Area’s weak economic performance and falling inflation. Many are now calling for the ECB to take steps towards an outright QE program after the first round of T-LTRO’s failed to deliver a meaningful balance sheet expansion; this should make next week’s ECB meeting quite an interesting event, as traders will have high hopes for the ABS purchase program that is to be announced as well as supplementary measures to aid balance sheet expansion.

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