The forex trading week has come and gone. Time to take a look at the currencies and/or forex pairs that were on the move and what moved them. Were you able to profit from any of this week’s top movers?
Like the previous trading week, it looks like forex traders still had their sights on the Kiwi and the Aussie. But this time, forex traders switched to sell mode for the Aussie while maintaining their bullish bias on the Kiwi. Let’s take a look at what caused the diverging price action for the two comdolls, shall we?
RBNZ Governor Graeme Wheeler’s speech
- Recent economic indicators have been more encouraging
- Some further easing in the OCR seems likely
- Lower interest rates could lead to higher housing price inflation due to higher demand
- Higher housing costs could inhibit investment
On October 13, at around 9:10 pm GMT, RBNZ head honcho Graeme Wheeler gave a speech titled “Some reflections on the world of central banking” at the Institute of Finance Professionals NZ in Auckland.
He touched upon many subjects on that speech, but what probably caught the attention of most forex traders was his statement that “Recent economic indicators have been more encouraging” since that reinforces the RBNZ’s earlier statement in their annual report that New Zealand’s economy “has performed much better than many advanced economies in recent years.”
And while Wheeler said his usual mantra that “Some further easing in the OCR seems likely,” he also added that “we remain conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation. It is important also to consider whether borrowing costs are constraining investment, and the need to have sufficient capacity to cut interest rates if the global economy slows significantly.”
Analysts noted that many forex traders and economists probably took Wheeler’s latter statement as a sign that the RBNZ is now hesitant on cutting rates and that a rate cut for the next meeting is therefore highly unlikely for now.
In contrast, Australia kept rates steady at 2.00% last week but many economists and financial institutions are still forecasting further rate cuts within this year and/or the next, with Goldman Sachs being the newest member of the rate cut cult.
Disappointing Chinese economic indicators
- Chinese imports slumped by 17.7%
- Chinese exports slid by 1.1%
- CPI y/y: 1.6% actual v.s. 1.8% expected, 2.0% previous
- PPI y/y: -5.9% as expected, same as the previous month
- PPI for iron ore mining industry fell by 21% year-on-year
China’s trade surplus unexpectedly widened a bit from $60.2B to $60.3B in September, but a closer look shows that the reason for the higher trade surplus is that imports slumped by around 17.7% while exports only suffered a 1.1% decline.
Obviously, this does not bode well for China’s trade partners, such as Australia, since lower Chinese imports mean lower demand for Australian commodity exports like iron ores. It also didn’t help that China’s CPI took a worse-than-expected tumble, which could mean lower consumer demand, and thus, weaker Chinese economic growth. Furthermore, China’s PPI took another hit, with the PPI reading for the iron ore mining industry dropping like a rock at -21% on an annualized basis. Ouch!
Wait! New Zealand’s economy is dependent on exports to China too, right? So how come the Kiwi climbed higher while the Aussie sank like a rock? Well, New Zealand is indeed dependent on exports to China for now, but New Zealand was able to gain limited access to the dairy markets of the U.S., Canada, Japan and Mexico via the Trans-Pacific Partnership deal, which is probably why most Kiwi bulls were unfazed. Also, tourism is picking up in New Zealand, which helps to offset losses from dairy exports.
Do you think these catalysts were enough to spark longer-term forex trends or did they just cause a knee-jerk reaction? Better keep these market themes in mind when planning your trades for next week!