Comdoll bashing was apparently the main theme during today’s Asian session. Specifically, the Kiwi got dumped hard pre-Tokyo, thanks to the RBNZ’s rate decision and statement. Meanwhile, the Aussie felt bearish pressure from the renewed slide in iron ore prices. As for the Loonie, it was likely reeling from Moody’s credit ratings downgrade of Canadian banks, given that oil was actually in the green during the session.
- RBNZ decided to maintain OCR at 1.75%
- RBNZ’s OCR projections unchanged
- New Zealand’s FPI m/m: -0.8% vs. -0.3% previous
- U.K. RICS house price balance: 22% vs. 20% expected, 22% previous
- Japanese bank lending y/y: 3.0% vs. 3.2% expected, 3.0% previous
- Japanese current account: ??¥1.73T vs. ??¥1.75T expected, ??¥2.29T previous
RBNZ statement and presser
The RBNZ maintained the OCR at 1.75%, which was a widely-expected moves. However, many traders were expecting the RBNZ to be a little bit more optimistic and perhaps even upgrade its projected path for OCR. Instead, the RBNZ just shrugged off the recent economic data when RBNZ’s Wheeler said the following:
“Developments since the February Monetary Policy Statement on balance are considered to be neutral for the stance of monetary policy.”
In particular, the RBNZ shrugged off the surge in Q1 inflation by saying the following:
“The increase in headline inflation in the March quarter was mainly due to higher tradables inflation, particularly petrol and food prices. These effects are temporary.”
Wheeler even noted during the presser that:
“”We are not seeing the buildup in inflation pressure that some other commentators are seeing.”
Moreover, Wheeler said that the Bank was maintaining its neutral policy bias. Worse, the RBNZ also maintained its projections for the OCR, so no rate hikes until the latter half of 2019. Also, GDP growth projections for 2017 and 2018 were downgraded, thanks to weaker forecasts for consumer spending, residential building construction, and exports.
Moody’s downgrades 6 Canadian banks
In a teleconference during the late U.S. session/pre-Tokyo open, Moody’s announced that it downgraded the long-term credit rating of Canada’s six largest banks.
The affected banks are the following:
- Toronto-Dominion Bank
- Bank of Montreal
- Bank of Nova Scotia
- Canadian Imperial Bank of Canada
- National Bank of Canada
- Royal Bank of Canada
According to Moody’s, the rationale for its decision is as follows:
“[E]xpanding levels of private-sector debt could weaken asset quality in the future. Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.”
In simpler terms, Canada’s housing market problems, which the BOC has also been harping about recently, may soon come home to roost and that will very likely dish out the pain on the Canadian banks.
Iron ore resumes slide
The signs of recovery yesterday was just a temporary correction it seems, given that iron ore resumed its slide during today’s Asian session, with Dalian iron ore down by 3.8% to 453 yuan per dry metric ton.
Market analysts pinned the blamed for the renewed slump on weak demand from Chinese steel companies and expectations that demand will remain low, thanks to the Chinese government’s crackdown on steel mills that fail to meet the government’s standards on emission and pollution.
Commodities rally still
Iron ore suffered today, but most other commodities continued to rally.
Precious metals were in the green again.
- Gold was up by 0.09% to $1,220.02 per troy ounce
- Silver was up by 0.40% to $16.272 per troy ounce
Base metals, meanwhile, were mixed but still mostly in positive territory.
- Copper was up by 0.24% to $2.501 per pound
- Nickel was up by 0.25% to $9,165.00 per dry metric ton
As for oil benchmarks, they extended their gains from yesterday.
- U.S. crude oil was up by 0.61% to $46.16 per barrel
- Brent crude oil was up by 0.47% to $48.96 per barrel
There was no clear reason for the broad-based commodities rally, although some market analysts said that the oil rally was still due to the decrease in U.S. oil inventories and rumors about Saudi Arabia slashing its oil supply to Asia.
Another risk-on day in Asia-Pacific
Risk-taking was sustained in the Asia-Pacific region for another day.
- Australia’s ASX 200 was up by 0.05% to 5,878.60
- New Zealand’s NZX 50 was up by 0.88% to 7,489.71
- The Shanghai Composite was down by 0.98% to 3,023.11
- Hang Seng was up by 0.29% to 25,088.0
- The Nikkei Index was up by 0.34% to 19,967.50
- KOSPI was up by 0.90% to 2,290.52
Market analysts say the “feel good” vibes in Asia was thanks mainly to higher oil prices boosting energy shares and improving overall risk sentiment.
Major Market Mover(s):
The Kiwi got dumped hard pre-Tokyo open when the market realized that the RBNZ maintained its neutral policy bias while also maintaining its projections for the OCR, as well as downgrading New Zealand’s growth projections. However, the Kiwi did trade mostly sideways during the Tokyo session itself, likely because of support from the risk-on vibes and commodities rally.
NZD/USD was down by 84 pips (-1.21%) to 0.6841, NZD/CHF was down by 85 pips (-1.22%) to 0.6898, NZD/JPY was down by 102 pips (-1.29%) to 78.11
The Loonie was the second worst-performing currency of the session. Oil actually extended its gains during the session, but Loonie traders were more likely focused on Moody’s downgrade of the Canadian banks, which then likely renewed jitters over Canada’s housing market.
USD/CAD was up by 86 pips (+0.65%) to 1.3737, EUR/CAD was up by 103 pips (+0.70%) to 1.4941, GBP/CAD was up by 116 pips (+0.66%) to 1.7778
Risk-taking was the prevalent risk sentiment and most commodities were in the green, but the higher-yielding Kiwi ended up as the third worst-performing currency of the session, likely because iron ore, Australia’s main commodity export, was not part of the commodities rally.
AUD/USD was down by 10 pips (-0.13%) to 0.7351, AUD/JPY was down by 20 pips (-0.24%) to 83.94, AUD/CHF was down by 15 pips (-0.21%) to 0.7412
Watch Out For:
- 6:00 am GMT: German WPI (0.1% expected, 0.0% previous)
- 7:15 am GMT: Swiss CPU (0.2% expected, same as previous)
- 8:30 am GMT: U.K. industrial production (-0.4% expected, -0.7% previous) and manufacturing production (-0.2% expected, -0.1% previous)
- 8:30 am GMT: U.K. goods trade balance (-£11.7B expected, -£12.5B previous)
- 11:00 am GMT: BOE rate decision, press statement, and inflation report (8-1 vote to keep Bank Rate at 0.25% expected)