Article Highlights

  • Canada’s housing starts at 207K in Jan vs. 202K forecast
  • Canadian foreign minister strongly opposed to new border tariffs with U.S.
  • U.S. crude oil inventories up 13.8M barrels vs. 2.7M consensus, 6.5M previous
  • RBNZ kept interest rates unchanged at 1.75% as expected
  • RBNZ: Kiwi remains higher than sustainable for balanced growth
  • RBNZ: Geopolitical uncertainties present, may adjust policy if needed
  • RBNZ pushed back 2% inflation timeline from Q4 2018 to Q2 2019
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The Greenback struggled to establish a clear direction against its forex rivals as comdolls consolidated while sterling pushed higher, but the RBNZ decision did spur some late-session action.

Major Events:

Trade troubles for Canada? – After meeting with her U.S. counterpart on the Trump team, Canadian foreign minister Chrystia Freeland stressed that their government would be “strongly opposed” to new border tariffs and that they would “respond appropriately” if the proposed border adjustment tax is implemented.

In case you missed it, this proposal could wind up slapping a 20% import tax on Canada’s energy products being sold in the U.S. in order to make up for the reduction on corporate tax to 15-20% in the homeland. Keep in mind that the U.S. has imported approximately 110-120K barrels of crude oil and petroleum products from Canada per month over the past couple of years so this could be in for a huge drop if additional tariffs make Canadian oil more expensive.

According to the latest EIA report, U.S. crude oil inventories rose by 13.8 million barrels, much higher than the projected increase of 2.7 million barrels and more than twice as much as the previous buildup of 6.5 million barrels. This reflects how U.S. oil producers have been increasing their output these days, possibly gearing up for when the economy can rely mostly on domestic production versus imported oil.

“I did make the point that Canada will have no position on the tax reform plan or the border adjustment tax idea until it is fully-formed and it is a concrete proposal. But I did make clear that we would be strongly opposed to any imposition of new tariffs between Canada and the United States, that we felt tariffs on exports would be mutually harmful,” Freeland reiterated. She also mentioned that she is meeting with several stakeholders in the automotive sector and softwood lumber industry to hear their concerns about the potential renegotiation of NAFTA.

RBNZ monetary policy statement  – Before New York session traders called it a night and just when Asian session folks are warming up, the RBNZ announced its monetary policy decision to keep interest rates on hold at 1.75% as expected.

In their official statement, the RBNZ pretty much rehashed their earlier announcement but added a few dovish hints. As Forex Gump predicted, policymakers jawboned the Kiwi once more, citing its negative impact on domestic price levels. “The exchange rate remains higher than is sustainable for balanced growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed,” the statement indicated.

Also, RBNZ officials acknowledged the presence of geopolitical uncertainties *cough, Trump, cough* and emphasized that they stand ready to adjust policy if necessary. But what was particularly notable for Kiwi traders is the central bank’s adjustment of their projection on when the economy could achieve 2% inflation, pushing it back from their earlier forecast of Q4 2018 to Q2 2019.

 

Major Market Movers:

NZD – The Kiwi had an immediate bearish reaction to the RBNZ statement as forex junkies zoomed in on the central bank’s adjusted inflation timeline.

NZD/USD dropped from a high of .7334 to a low of .7245, NZD/JPY tumbled from a session high of 81.84 to test the 81.00 mark, EUR/NZD popped up to 1.4530, and AUD/NZD rallied to 1.0550.

GBP Sterling has been extra resilient these days, drawing bullish energy from BOE official Forbes’ remarks about potential tightening.

GBP/USD advanced from 1.2480 to 1.2550, GBP/JPY climbed from a low of 139.81 to a high of 140.50, GBP/CAD rose from 1.6408 to 1.6507, and GBP/NZD rallied to the 1.7300 handle.

Watch Out For:

  • 11:50 pm GMT: Japanese core machinery orders (+3.2% expected, -5.1% previous)
  • 12:00 am GMT: Australian HIA new home sales
  • 12:10 am GMT: RBNZ Governor Wheeler’s testimony
  • 12:30 am GMT: Australia NAB quarterly business confidence index
  • 6:00 am GMT: Japanese preliminary machine tool orders (4.4% previous)

See also:

London Session Recap

Asian Session Recap

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