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To everyone’s surprise, the RBNZ left the OCR unchanged at 0.25% in August. The decision was made in light of the renewed New Zealand’s lockdown after a report of one coronavirus case. Policymakers, however, maintained a hawkish stance, suggesting that the next policy decision would be tightening. Meanwhile, the Funding-For-Lending program (FLP) also stayed unchanged at NZ$28B.

On the economic outlook, the members acknowledged that “rising capacity pressures will feed through into inflation, and that employment is at its maximum sustainable level”. The assessment is likely driven by the strong inflation and employment data released since the last meeting. The RBNZ forecast that the unemployment rate would remain around 4% over the coming few years, and headline inflation would stay well above the 1-3% target band until 2H22. While elevated inflation would partly be driven by transitory factors, policymakers were paying more attention to its sustainability.

Concerning the economic impacts of the lockdown, the RBNZ indicated that “the economy is resilient to periods at higher alert levels if there is significant government support provided, and alert levels can be lowered relatively quickly”, and that “fiscal policy (government spending and transfer payments) has proved to be a very effective tool to respond to any immediate reduction in demand in the event of outbreaks. A monetary policy response may be required if a health-related lockdown has a more enduring impact on inflation and employment”. We don’t expect the central bank to respond to temporary economic disruption brought about by the lockdown

While leaving the monetary policy on hold might sound dovish, policymakers indicated that the decision to leave the monetary policy unchanged was mainly driven by “the Government’s imposition of Level 4 COVID restrictions on activity across New Zealand”and ”the heightened uncertainty with the country in a lockdown”.

The central bank maintained a hawkish outlook. As noted in the policy statement, “the Committee will assess the inflation and employment outlook on an ongoing basis, with a view to continue to reduce the level of monetary stimulus over time so as to best meet their policy remit”. The members agreed that the “least regrets policy stance” is to “further reduce the level of monetary stimulus so as to anchor inflation expectations and continue to contribute to maximum sustainable employment”. At the press conference, Governor Orr affirmed that the “clear direction is to reduce policy stimulus”, and the central bank “would need to see significant changes in demand to change course”.

RBNZ’s projections revealed that there would be around two rate hikes in 4Q21, followed by one rate hike per quarter over the course of 2022 and 2023 before reaching the neutral rate of 2% in 3Q23.

Asian equities stage a surprise rally

Asian equities are higher across the board this morning, despite a sombre finish by Wall Street. Growth fears and delta-variants finally saw Wall Street’s multi-day run higher, come to an end overnight. The S&P 500 fell by 0.70%, the Nasdaq slumped by 0.93%, and the Dow Jones retreated by 0.79% as a wave of risk aversion swept equity markets and other asset classes. Aftermarket futures on all three have risen modestly, with Asia today, climbing by around 0.10%.

Asian markets are mostly rallying today, though, in contrast to Wall Street. As I have stated, the drivers for the rallies across the region are not clear. An on-hold RBNZ, falling virus cases in China, a weak CNY fixing, bargain hunting after a few negative days or weaker Asian currencies, or a FOMO buy the dip could all be combining to drive the rally. Without looking under the bonnet regionally, much of the buying could also be in more defensive stocks, pushing up the headline indexes.

Either way, Asia is enjoying a good day with the Nikkei 225 0.73% higher and the Kospi jumping by 0.95%. China’s Shanghai Composite, CSI 300 and Hang Seng are all 0.70% higher. Singapore has jumped by 0.90%, while Taipei is up 0.20%, and Bangkok and Jakarta are 0.30%. Kuala Lumpur lags the region, the KLCI unchanged on the day as Malaysia’s political chaos weighs on investor sentiment. Australian markets are labouring under virus concerns still with the ASX 200 and All Ordinaries climbing just 0.10% today, while New Zealand receives an RBNZ boost on its way to a 0.55% gain.

The key will be whether today’s rally has legs or not or is merely a FOMO buy-the-dip one-off. We should know more tomorrow. The price action by Asia and the US futures should be enough to alleviate virus nerves temporarily in Europe, which I expect to open modestly higher today as a result.

New Zealand is grabbing the headlines in Asia today, but for all the wrong reasons. It reported its first community case in Auckland yesterday that has risen to seven and counting this morning. The government placed the entire country in lockdown overnight, sending the New Zealand dollar tumbling by over 1.0%.

That made the Reserve Bank of New Zealand’s policy decision this morning all the more interesting as a 0.25% rate hike had been pencilled in by the entire world. As it turned out, the RBNZ blinked and left rates unchanged at 0.25%, sending the kiwi another 0.50% lower to 0.6870. However, the RBNZ signalled that it still intended to raise rates, and we saw the flightless bird whipsaw markets, and it is now 0.45% higher on the day at 0.6950. Monetary policy appears to have achieved her immunity with vaccines, it seems. Cases are almost certain to rise, perhaps precipitously inside fortress New Zealand, and today’s bounce could be the best we see of the New Zealand dollar rally for a while.

Elsewhere, risk aversion was the theme of the night in New York. US Retail Sales disappointed while markets completely ignored better industrial production. Home Depot’s shares fell after quarterly earnings came up short, continuing a trend of severe punishment for companies who don’t meet earnings expectations against a background of pimped-up valuations. What we can take out of the overnight session is that fears are increasing of a slowing global economic recovery that was K-shaped anyway, especially after China data disappointed earlier in the week. Behind it all is the ever-present threat of the Covid-19 delta-variant, and markets finally succumbed to those nerves overnight.

The US dollar soared even as the US yield curve remained unchanged. Haven buying is evident in gold, which is also getting an Afghanistan boost. Oil prices sank while even fellow haven currencies, the Swiss Franc and Japanese Yen, bowed before the US dollar while even the digital Dutch tulip, bitcoin, retreated by 2.70%. My charts suggest a break below USD 44,000 of US taxpayer revenue backed fiat currency, not dodgy US dollar “backed” unstable coins, could be in for a much deeper retreat. Before all the crypto-massive reach for their social media and email phasers to zap me, the greater uptrend remains intact as long as the 50 and 100-day moving averages, both near USD 38,000.00, remain intact, with a target of around USD 52,000.00. I know that isn’t USD 23,567,945,843.22, but work with me; the fiat currency zombie apocalypse might happen. Now go back to your formula one racing car computational workstation seats and stack of empty pizza boxes and leave me alone.

If the mood was sombre overnight, that doesn’t seem to be the case in Asia today. True, Asian currencies remain under pressure as the US dollar surges, but equity markets have rebounded strongly today. Looking for drivers to explain the rally, China’s Covid-19 cases fell today, admittedly from a low base. Japan’s trade surplus exploded higher, although looking below the bonnet, exports fell, but imports fell a lot more, flattering the headline and implying supply chain challenges remain and domestic consumption is fragile. This morning, the PBOC set the USD/CNY fixing at 6.4915, the weakest CNY mid-point for six weeks. That may be lifting sentiment in mainland equities.

This afternoon, the Eurozone, and the United Kingdom both release inflation data. However, barring a huge upside surprise, I expect neither to have much market impact. Investors will be eyeing the nut and bolts of the FOMC minutes later this evening for signs that a majority of members are swinging behind a taper sooner rather than later. That could boost the US dollar once again. Minneapolis Federal Reserve President Neel Kashkari, an FOMC dove, was anything but in comments early this morning, signalling a Fed tapering either side of the year-end was a reasonable possibility. He also said cryptocurrency is 95% fraud, hype, noise, and confusion. He is my favourite Fed President.

However, none of those releases is first-tier, and I expect growth and delta fears to continue to dominate markets. It will just be a matter of whether the overnight fall by stocks on Wall Street is a dip to buy or the start of a minor correction. Fortune favours the former.

Notes/Observations

• Various July readings of inflation showed signs of easing (UK, South Africa).
• UK July CPI lower-than-expected and moved back to target.
• EU CPI confirmed that annual pace moves back above ECB's target.
• Markets debate over whether the spread of the delta Covid-19 variant might derail the economic rebound.
• Fed July Minutes signals on how soon the U.S. central bank will begin paring back on economic stimulus.

Asia

• New Zealand Central Bank (RBNZ) left Official Cash Rate (OCR) unchanged at 0.25% (not expected) due to recent lockdown measures.
• Japan July Trade Balance: ¥441.0B v ¥196.4B; Exports Y/Y: 37.0% v 39.4%e; Imports Y/Y: 28.5% v 35.3%e.
• South Korea FX Authority: Cautiously watching possible overshoot in USD/KRW.

Europe

• UK Dept for International Trade confirmed it was in pre-negotiation scoping phase of a free trade agreement with India.
• UK Cabinet ministers said to be advising PM Johnson to temporarily change the long held tradition of 7% increase to state pensions deeming it would not be affordable.

Mid-East

• IAEA stated that Iran had nearly doubled its enrichment capacity dedicated to purifying uranium close to the levels required for nuclear weapon.

Americas

• Fed Chair Powell noted that covid was still with us and would likely be for a while; Not clear yet if the Delta strain would have important effects on the economy.
• Fed's Rosengren (non-voter): Massive bond purchases ill suited for US; reiterates would support beginning tapering in Sept.
• Fed's Kashkari (dove, non-voter): Last jobs report was very strong report. but still 6-8M jobs short of pre-pandemic levels. Monitoring data closely to see if high inflation would be temporary or persistent. Saw high price right now but still a lot of slack in labor market. Best guess was that we were a few years away from a rate hike.

Energy

• Weekly API Crude Oil Inventories: -1.2M v -0.8M prior.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -0.04% at 473.58, FTSE -0.34% at 7,156.85, DAX -0.27% at 15,879.50, CAC-40 -0.35% at 6,795.81, IBEX-35 +0.03% at 8,868.00, FTSE MIB -0.08% at 26,204.50, SMI +0.28% at 12,511.90, S&P 500 Futures -0.11%].
• Market Focal Points/Key Themes: European indices open broadly flat but later traded mixed with a downward bias; lack of risk appetite supports safe haven assets; sectors trending higher include health care and real estate; sectors trending lower include energy and financials; Lundbeck results dragging on oil & gas subsector despite increase in crude prices; Good Energy rejects offer from Ecotricity; M&G to acquire Santringham Financial; BHP’s plan to delist from London encounters resistance; focus on release of FOMC minutes later in the session; earnings expected during the upcoming US session include Lowes, Target, Brinker and Analog Devices.

Equities

• Consumer discretionary: Carlsberg [CARLB.DK] +3% (earnings), Matas [MATAS.DK] +9% (earnings).
• Healthcare: Lundbeck [LUN.DK] -8% (earnings).
• Industrials: Balfour Beatty [BBY.UK] -6% (earnings), Persimmon [PSN.UK] -3% (earnings).

Speakers

• ECB noted that the bank sector was planning prudent dividends for Q4.
• Philippines cut its 2021 GDP growth forecast from 6.0-7.0% range to 4.0-5.0% range citing virus restrictions . Maintained it growth outlook for 2022-24 period.
• IAEA says Iran has nearly doubled its enrichment capacity dedicated to purifying uranium close to the 60% levels required for nuclear weapon (**Note: Move by Iran viewed that t would not de-escalate its atomic activities before meeting again with world powers).

Currencies/Fixed Income

• USD holding onto recent gains with focus on upcoming FOMC July Minutes for any clues around the timing or speed of plans to taper asset purchases. Market debating whether the spread of the delta Covid-19 variant might derail the economic rebound.
• EUR/USD tested 9-month lows during the Asian session at 1.1702 (lowest since November 2020). Pair drifted higher in quiet trading.
• GBP/USD drifted higher despite improvement on the inflation front. Pair at 1.3755 by mid-session.

Economic data

• (UK) July CPI M/M: 0.0% v 0.2%e; Y/Y: 2.0% v 2.3%e ; CPI Core Y/Y: 1.8% v 2.0%e; CPIH Y/Y: 2.1% v 2.3%e.
• (UK) July RPI M/M: 0.5% v 0.3%e; Y/Y: 3.8% v 3.6%e v 3.9% prior; RPI-X (ex-mortgage interest payments) Y/Y: 3.9% v 3.7%e; Retail Price Index: 305.5 v 305.0e.
• (UK) July PPI Input M/M: 0.8% v 0.5%e; Y/Y: 9.9% v 9.1%e.
• (UK) July PPI Output M/M: 0.6% v 0.5%e; Y/Y: 4.9% v 4.4%e.
• (AT) Austria July Final CPI MM: 0.3% v 0.1% prelim; Y/Y: 2.9% v 2.7% prelim.
• (PL) Poland July Employment M/M: 0.0% v 0.2%e; Y/Y: 1.8% v 2.0%e.
• (PL) Poland July Average Gross Wages M/M: 0.9% v 0.7%e; Y/Y: 8.7% v 8.9%e.
• (PL) Poland Aug Consumer Confidence: -14.6 v -13.5 prior.
• (ZA) South Africa July CPI M/M: 1.1% v 1.1%e; Y/Y: 4.6% v 4.7%e (5th straight reading within target band).
• (ZA) South Africa July CPI Core M/M: 0.5% v 0.5%e; Y/Y: 3.0% v 3.2%e.
• (UK) Jun ONS House Price Index Y/Y: 13.2% v 9.8% prior.
• (HK) Hong Kong July Unemployment Rate: 5.0% v 5.3%e.
• (EU) Euro Zone July Final CPI Y/Y: 2.2% v 2.2%e; CPI Core Y/Y: 0.7% v 0.7%e; CPI M/M: -0.1% v -0.1%e.
• (EU) Euro Zone Jun Construction Output M/M: -1.7% v -0.4% prior; Y/Y: 2.8% v 12.2% prior.
• (CY) Cyprus July CPI Harmonized M/M: 0.2% v 1.0% prior; Y/Y: 2.7% v 2.2% prior.

Fixed income Issuance

• (IN) India sold total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills.
• (ID) Indonesia sold total IDR30.0T vs. IDR33.0T target in bills and bonds.
• (DK) Denmark sold total DKK4.18B in 2024, 2031 and 2052 DGB bonds.
• (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 3-month bills; Avg Yield: -0.1957% v -0.1999% prior; bid-to-cover: 3.17x v 2.55x prior.

Looking Ahead

• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (DE) Germany to sell €1.0B in 0% Aug 2050 Bunds.
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.75-1.0B in 3-month and 12-month bills.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).
• 06:00 (PT) Portugal July PPI M/M: No est v 1.6% prior; Y/Y: No est v 8.9% prior.
• 06:00 (CZ) Czech Republic to sell CZK100M in 0% 2027 Bonds.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (RU) Russia to sell 2031 and 2041 OFZ Bonds.
• 07:00 (US) MBA Mortgage Applications w/e Aug 13th: No est v 2.8% prior.
• 07:00 (ZA) South Africa Jun Retail Sales M/M: -0.5%e v +2.1% prior; Y/Y: 9.5%e v 15.8% prior.
• 07:00 (UK) No Weekly PM Question time in House (summer holiday).
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) July Housing Starts: 1.600Me v 1.643M prior; Building Permits: 1.610Me v 1.594M prior (revised from 1.598M).
• 08:30 (CA) Canada July CPI M/M: 0.3%e v 0.3% prior; Y/Y: 3.4%e v 3.1% prior; Consumer Price Index: 141.9e v 141.4 prior.
• 08:30 (CL) Chile Q2 GDP Q/Q: 0.7%e v 3.2% prior; Y/Y: 17.4%e v 0.3% prior.
• 08:30 (CL) Chile Q2 Current Account Balance: No est v -$1.6B prior.
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (7-20 years).
• 10:30 (US) Weekly DOE Oil Inventories.
• 12:00 (RU) Russia July PPI M/M: 2.0%e v 2.9% prior; Y/Y: 27.8%e v 31.1% prior.
• 13:00 (US) Treasury to sell 20-Year Bonds.
• 14:00 (US) FOMC July Minutes.
• 21:00 (CN) China July Swift Global Payments (CNY): No est v 2.5% prior.
• 21:30 (AU) Australia July Employment Change: -43.1Ke v +29.1K prior; Unemployment Rate: 5.0%e v 4.9% prior; Full Time Employment Change: No est v +51.6K prior; Part Time Employment Change: No est v -22.5K prior; Participation Rate: 66.0%e v 66.2% prior.
• 22:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Expected to leave Key rates unchanged; Standing Lending Rate currently at 5.50%; Standing Deposit Rate currently at 4.50%.
• 23:00 (KR) South Korea Q2 Short-Term External Debt: No est v $165.7B prior.
• 23:00 (TH) Thailand Central Bank to sell THB30B in 2023 Bonds.
• 23:30 (JP) Japan to sell 12-Month Bills.

Technical analysis

The RSI is closer to line 50, indicating that an uptrend may occur

The Ichimoku indicator displays a bearish sentiment

The Stochastic suggests a possible upward correction.

What the possible outcomes are

In the most likely scenario, EURUSD may attempt to recover towards the first resistance level of 1.17333 before declining towards the first support level of 1.17049.

If the pair surpasses the first resistance level, we should expect a continued surge towards the second resistance level of 1.17546.

Alternatively, the EURUSD pair may decline to the first support level of 1.17049.

A pass below the first level can move the price up lower toward 1.16820.

Key levels

Support 1.16820 1.17049

Resistance 1.17333 1.17546 1.17831

Silver has retested a historical support and is ready to follow up a long trade.

We can see a daily confirmation of buyers in the POC zone. If the market makes a bounce in the zone we could see a retest of M L3 and M H3 levels. M L3 is 24.83 and 26.09 could be the target. For bulls to win this swing the price needs to stay above 23.00.

The British Pound started a fresh decline after it failed to surpass 1.3880 against the US Dollar. The GBP/USD pair traded below the 1.3850 support level to move into a bearish zone.

The pair even broke the 1.3800 support and the 50 hourly simple moving average. It traded as low as 1.2725 and it is now correcting higher. An immediate resistance is near the 1.3760 level. There is also a major bearish trend line with resistance near 1.3760 on the hourly chart.

If there is a clear break above the 1.3750 and 1.3760 resistance levels, the pair could start a decent recovery towards the 1.3800 resistance.

On the downside, an initial support on FXOpen is near the 1.3735 level. The main support is forming near the 1.3725 level. If there is a downside break the 1.3725 support, the pair could decline towards 1.3650.

Eurozone CPI was finalized at 2.2% yoy in July 2021, up from June's 1.9% yoy. Core CPI was finalized at 0.7% yoy. Highest contribution came from energy (+1.34%), followed by food, alcohol & tobacco (+0.35%), services (+0.31%) and non-energy industrial goods (+0.17%).

EU CPI was finalized at 2.5%, up from 2.2% in June. The lowest annual rates were registered in Malta (0.3%), Greece (0.7%) and Italy (1.0%). The highest annual rates were recorded in Estonia (4.9%), Poland and Hungary (both 4.7%). Compared with June, annual inflation fell in nine Member States, remained stable in two and rose in sixteen.

Full release here.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.1777
Prev Close: 1.1708
% chg. over the last day: -0.60%

Eurozone GDP increased in the 2nd quarter. Economists believe that the Eurozone GDP will continue its growth in Q3 despite the outbreak of the Delta strain. However, the situation is different for the European currency as the euro is inversely correlated to the dollar index. Europe will report on inflation today. Analysts tend to believe that inflation in the eurozone will rise from 1.9% to 2.2% on a year-on-year basis.

Trading recommendations

Support levels: 1.1706, 1.1609
Resistance levels: 1.1754, 1.1799, 1.1817, 1.1854, 1.1894, 1.1934, 1.1969

From a technical point of view, the general trend on the EUR/USD currency pair is bearish. Yesterday, the price decreased again; the MACD indicator is in the negative zone, with no signs of a reversal. Under such market conditions, it is better to look for the sell deals from the resistance levels, where there was an initiative from the sellers. Buy trades can be considered only from the support levels and only after the buyers’ initiative.

Alternative scenario: if the price breaks through the 1.1854 resistance level and fixes above, the mid-term uptrend will likely resume.

News feed for 2021.08.18:

• Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
• US Building Permits (m/m) at 15:30 (GMT+3);
• US FOMC Meeting Minutes at 21:00 (GMT+3).

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.3838
Prev Close: 1.3737
% chg. over the last day: -0.73%

The number of employees in British companies approached pre-pandemic levels, the number of jobs increased by 182,000 in July, and wage growth hit a record high. The unemployment rate fell from 4.8% to 4.7%. But even such macroeconomic statistics did not keep the British pound from falling yesterday. The British pound is losing its positions more and more from day to day.

Trading recommendations

Support levels: 1.3714, 1.3676 ,1.3641, 1.3614, 1.3525
Resistance levels: 1.3802, 1.3772, 1.3886, 1.3935, 1.4002, 1.4075, 1.4101

The trend of the GBP/USD currency pair is bullish on the hourly time frame. But the price is close to the priority change level. The MACD indicator is in the negative zone, with no signs of a reversal. Under such market conditions, traders are better to look for the buy trades from the priority change level. But it is better to enter with confirmation because the sellers' pressure is very strong.

Alternative scenario: if the price breaks through the 1.3714 support level and consolidates below, the bearish scenario is likely to resume.

News feed for 2021.08.18:

• UK Consumer Price Index (m/m) at 09:00 (GMT+3).

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 109.26
Prev Close: 109.58
% chg. over the last day: +0.29%

Yesterday, the USD/JPY currency pair increased by 0.29% amid a stronger dollar index and rebounded from the priority change level. Japan weakened quarantine restrictions after the Olympics ended, and people rushed to the stores, so business activity is expected to be positive in the next quarter. But general forecasts for the 3rd quarter indicated the slowdown of growth rates.

Trading recommendations

Support levels: 109.43, 109.19, 108.65
Resistance levels: 110.04, 110.34, 110.66, 110.95, 111.48

The main trend on the USD/JPY currency pair is bullish. But the price is trading below the moving average line and has reached the priority change level. The MACD indicator became positive, but the growth is unclear. Under such market conditions, it is better to look for the buy positions from the support level, where the buyers show initiative. Sell positions should be considered only on the lower timeframes from the resistance levels.

Alternative scenario: if the price falls below 109.19, the uptrend is likely to be broken.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.2565
Prev Close: 1.2625
% chg. over the last day: +0.48%

The Canadian dollar is very dependent on the performance of the dollar index and the oil price performance. Yesterday, oil was slightly decreased while the dollar index increased, which caused USD/CAD rally. Canada will report on inflation today. Analysts are confident that inflation in the country will remain at the same level.

Trading recommendations

Support levels: 1.2602,1.2554, 1.2518, 1.2471, 1.2425, 1.2370, 1.2312
Resistance levels: 1.2642, 1.2671, 1.2787, 1.2951

In terms of technical analysis, the trend on the USD/CAD currency pair is bearish. But the local trend is bullish, and the price reached the priority change level. Now the price has strongly deviated from the moving average. Under such market conditions, it is best for traders to look for the sell positions from the resistance levels after the sellers’ initiative. Buy positions should be considered from the support levels within the local upward movement throughout the day.

Alternative scenario: if the price breaks through the 1.2671 resistance level and fixes above, the uptrend is likely to be resumed.

• Stock markets edge lower after US retail sales disappoint
• Risk aversion reawakens the dollar ahead of Fed minutes today
• RBNZ says rate hikes ‘delayed not derailed’, kiwi goes wild

Stocks bleed, but not much

It was a lively session across global markets. Wall Street came under pressure on Tuesday after US retail sales fell short of expectations, amplifying concerns that consumer spending may be rolling over and reinforcing the narrative that economic growth has already peaked.

Of course, the retreat was mild and there wasn’t any sense of panic selling, with the S&P 500 losing just 0.7%. It is quite impressive that US markets are still within touching distance from record highs, defying an imminent withdrawal of Fed liquidity as well as a worsening Delta outbreak in America and Asia, even with valuations being so stretched.

This resilience might boil down to expectations that the Fed will be infinitely cautious in reining back stimulus and that Congress will put a floor under economic growth by delivering another multi-trillion round of spending. Monetary policy will still be super-loose after tapering and the fiscal taps aren’t closing.
Stock markets can always bleed, but dip buyers aren’t going away anytime soon.

Dollar stands tall, looks to Fed minutes

The FX market traded exactly as one would expect when growth worries are the dominant theme, with commodity currencies getting blasted alongside the risk-sensitive British pound.

Across the risk spectrum, it was the dollar that shined the brightest even despite the disappointing US retail sales, highlighting once again that ‘when the going gets tough’ everyone seeks shelter in the world’s reserve currency. The yen also performed well, but its advance was capped by global bond yields rising a little.

Euro/dollar is currently testing its lows for the year around $1.17 and whether it manages to pierce through this region might depend on what the Fed minutes have to say about tapering today at 18:00 GMT. That said, the Jackson Hole symposium next week is where any real hints will drop, so this might steal the thunder from the upcoming minutes.

The question is whether we will get a formal taper announcement in September or November. That doesn’t matter much in the big picture. Tapering is coming, it’s just a matter of time. Even the Fed’s arch dove - Neel Kashkari - said so yesterday. The path of least resistance for the dollar still seems higher, especially against low-yielders like the euro and yen.

RBNZ holds rates, kiwi goes for a rollercoaster ride

The real fireworks today were in the kiwi after the Reserve Bank of New Zealand kept interest rates unchanged. What looked like a certain rate increase until a couple of days ago was thrown under the bus after the nation went into a snap lockdown yesterday to battle the first virus outbreak in months.

The kiwi took some damage as the RBNZ held its fire, but it came back roaring as Governor Orr signaled that their normalization plans were merely delayed, not derailed. Rate forecasts were revised higher to reflect that, now penciling in around five rate hikes by the end of next year.

Overall, the message was that this isn’t a game changer, but merely a speed bump in the road towards higher rates. The kiwi’s fortunes are now tied to the domestic health situation. Will New Zealand eradicate the virus from its borders again or will it follow Australia in a vicious lockdown spiral? That will determine whether the RBNZ honors its promises.