RBNZ sends the Kiwie lower

After extending gains on hope that the RBNZ would adopt a more positive on the inflation outlook, the Kiwi fell sharply on Thursday morning and reached its lowest level in more than two years (lowest since March 2016). After climbing as high as $0.6762 yesterday, NZD/USD slid 1.33% this morning to $0.6655 after the Reserve Bank of New Zealand adopted a more dovish stance. As broadly expected the monetary institution maintained the Official Cash Rate at record low 1.75%. However, investors didn’t expect that Adrian Orr would delayed the timing for the next rate hike. The RBNZ is now expected to wait until the third quarter of 2020, which corresponds to a delay of one year compared to the May forecast. In addition, Governor Orr said that the RBNZ leaves the door open for a rate cut, should the situation warrant it.

The RBNZ’s dovish turn wasn’t expected by most market participants, which explains why the Kiwi is having a rough day. Nevertheless, Governor Orr also said that the RBNZ was finally “pleased” with current level of the Kiwi, which suggests that the downside is limited. In the medium-term, we do not rule out further weakness of the Kiwi towards the 0.66-0.65 support area. However, we remain positive in the longer-term as we believe the Kiwi is approaching oversold territory.

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Crude oil sharp decline resumes as investors focus on Chinese tariffs

API estimates and lower inventories from EIA (-1.35 million barrels vs consensus: 2.16 million) for the week ending in 3. August along with US sanctions on exporting goods (ex oil products) failed to impress the market in a sustained way, with Brent Crude and West Texas Intermediate intraday prices reaching 74.65 and 69.17 before plummeting below 100 DMA.

Indeed, the focus is now turning to Chinese 25% duties on $ 16 billion energy products including gasoline, diesel and other oil-based products, a first move of the kind with regard to the energy sector. The decision will be effective in 23. August 2018.

Accounting for 20% of total US oil exports (17.6 million barrels in May), China currently remains the largest importer of US crude oil, a trend that could drastically change in the coming periods as China’s large energy companies are ramping up production in an attempt to satisfy domestic demand at best.

Accordingly, the recent decline in oil prices seems overstated. The short-term bearish impact is expected to dissipate, as global energy demand remains robust. Trading below 50 and 100 DMAs, WTI is expected to rebound in the short-term, approaching the 68.50 range (along 23.6% Fibonacci retracement).

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