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Wall Street slumped back into negative territory but the U.S. dollar managed to outpace it peers as safe-haven demand picked up.

The Kiwi was already in a weak spot leading up to the RBNZ announcement then chalked up more losses after the event.

  • U.S. core durable goods orders down 0.3% vs. expected 0.5% gain
  • U.S. headline durable goods orders down 0.6% vs. estimated 0.9% drop
  • U.S. goods trade deficit narrowed from $67.3B to $64.8B vs. $68.9B estimate
  • U.S. preliminary wholesale inventories up by 0.5% vs. 0.2% consensus
  • U.S. pending home sales down by 0.5% vs. projected 0.4% rebound
  • BOC head Poloz: Tariffs and housing market lending to be considered in next meeting
  • Poloz reiterated data-dependence of BOC, forward guidance to put credibility at risk
  • RBNZ kept interest rates on hold at  1.75% as expected
  • RBNZ: GDP weakness reflects more spare capacity than anticipated
  • RBNZ to keep OCR at “an expansionary level for a considerable period”

Major Events/Reports:

Trade war jitters returning?

After a bit of a bounce on Tuesday, U.S. stock indices slumped back into negative territory as investors continued to fret about the implications of trade troubles on businesses.

  • Dow 30 index is down 165.52 points to 24,117.59 (-0.68%)
  • S&P 500 index is down 23.43 points to 2,699.63 (-0.86%)
  • Nasdaq is down  116.54 points to 7,445.09 (-1.54%)

Earlier in the week, Trump conceded to Treasury Secretary Mnuchin’s suggestion to go through a security review panel in evaluating whether restrictions should be imposed or not on foreign companies acquiring U.S. tech firms.

However, White House economic adviser Larry Kudlow clarified in an interview that this doesn’t reflect a softer stance in dealing with China. He even dubbed this approach as “CFIUS-plus” and stated:

“It’s not meant to be harder or softer. It’s going to be very comprehensive and very effective at protecting our technological family jewels in the United States.”

Some caution from BOC head Poloz

Market watchers paid more attention than usual to the testimony by BOC head honcho Poloz to glean clues ahead of the central bank’s decision in July, which previously had high hopes for a rate hike.

However, as hinted at in recent statements, trade uncertainties are dampening their outlook and this point was once again highlighted by the Governor himself. Poloz said that they will incorporate “the effects of the recently announced US steel and aluminum tariffs, along with retaliatory measures, both in Canada and globally” in their projections.

He also emphasized that the housing market poses additional uncertainties, citing that they are also “analyzing individual-level data to understand how the new lending guidelines in Canada are affecting the housing market and mortgage renewals.”

Furthermore, Poloz noted that forward guidance might not necessarily do the BOC much good since they are still data-dependent. Although this could improve transparency, it also poses a risk, particularly:

“… by anchoring financial market expectations, forward guidance reduces the reaction of markets to economic news. In short, it suppresses the signalling role of financial markets.”

RBNZ kept rates on hold

As widely expected, the RBNZ decided to sit on its hands for the nth time and kept rates unchanged at 1.75%. RBNZ head Orr added that they are well-positioned to manage a change in either direction, whether up or down, as necessary.

Their official statement started off by acknowledging how their outlook from their May statement remains intact and that global economic growth could continue support demand for their goods and services. However, central bank officials noted that below-target inflation needs “continued supportive monetary policy for some time to come.”

RBNZ policymakers also drew attention to trade uncertainties dampening the outlook for the global economy. Domestically, it acknowledged that the GDP slowdown “implies marginally more spare capacity in the economy” than anticipated and that the government’s “projected spending impulse is also slightly lower and later than anticipated.”

Major Market Mover(s):

NZD

The Kiwi started sliding lower leading up to the RBNZ statement as traders already anticipated some words of caution. The selloff carried on during and after the event owing to some dovish hints.

NZD/USD tumbled from .6818 to a low of .6778, NZD/JPY fell from the 75.00 area to a low of 74.60, GBP/NZD is up to 1.9342, and AUD/NZD climbed to 1.0830.

USD

Even with a dip in bond yields, mixed data, and resurfacing trade jitters, the Greenback managed to chalk up a few more gains during the New York session.

Some hawkish hints from Fed official Rosengren, who stated that the central bank should act before the economy overshoots the sustainable employment rate, may have lifted the dollar. Then again, safe-haven demand on weakening prospects for global growth on account of trade troubles likely came into play.

USD/JPY ticked up from 109.86 to a high of 110.49 before retreating to 110.19, USD/CHF climbed to a high of .9971, EUR/USD inched down from 1.1628 to a low of 1.1540, and AUD/USD fell to .7342.

Watch Out For:

  • 11:50 pm GMT: Japanese retail sales y/y (1.3% expected, 1.5% previous)