New Zealand and Australian Central Banks in Spotlight

August 20, 2013

Central bank remarks, concerns about China, and softer commodities weighed on the kiwi and Aussie dollar, which respectively fell by 1.0% and 0.5% against their U.S. counterpart.

  • Governor Wheeler of the Reserve Bank of New Zealand announced planned bank lending curbs to rein in house price inflation to be used in lieu of a hike in interest rates, which runs a risk of boosting the kiwi.  Wheeler said the New Zealand dollar, a.k.a, kiwi, remains overvalued.
  • Minutes from the Reserve Bank of Australia policy board meeting earlier this month left the door open for a further interest rate cut but signaled such is not likely very soon.  Monetary officials are concerned that the Aussie dollar could be too strong and will be influenced strongly by how the currency performs.

Stocks got clobbered in Asia and Europe.  Japan’s Nikkei tumbled 2.6%.  Other Pacific Rim losses amounted to 3.2% in Indonesia, 1.4% in Singapore, 1.6% in South Korea, 2.2% in Hong Kong, 0.9% in Taiwan, 0.8% in China and 0.7% in Australia.  In Europe, Spain’s IBEX is down 2.3%, and share prices have fallen 1.5% in France, 1.1% in Germany, 1.6% in Italy, and 0.6% in Britain.

The dollar firmed 0.3% against the loonie but is down 0.3% relative to the euro, Swissie, and yen and off 0.1% against sterling.  The yuan is steady.

The yields on 10-year sovereign debt have fallen by five, two and a single basis point in Britain, Germany, and Japan.  A lower Treasury yields is indicated in futures trading.

The price of WTI oil dropped 0.5% to $106.55 per barrel. Gold edged 0.1% lower to $1364.40 per ounce.

Japan’s all industry index fell 0.6% in June, depressed by declines of 3.0% in industrial production and 0.3% in service sector activity.  The all industry index, a proxy for GDP, rose 1.1% in the second quarter, however, and was 0.3% firmer in June than a year earlier.

Department store sales in Japan and Tokyo were respectively 2.5% and 1.0% weaker in July than a year earlier.

Expected inflation has accelerated in New Zealand according to the latest quarterly survey.  Inflation over the coming year is seen at 1.9%, up 0.4 percentage points from the prior survey’s indication.  Over the coming two years, inflation is seen running at 2.36%, 0.3 percentage points above the prior survey’s prediction.

Hong Kong CPI inflation accelerated to 6.9% in July, most in two years, from 4.1%.  Singapore WPI inflation jumped to 4.9% last quarter from 2.3% in the year to 1Q.

Construction output in the euro area rose 0.7% in June.  This was the third consecutive monthly increase, but output still showed an on-year drop of 3.0% in June and 5.0% in the second quarter.

Producer prices in Germany edged 0.1% lower in July and were just 0.5% higher than a year earlier.  Both energy and all other producer prices collectively rose 0.5% on year.  Also in the year to July, producer prices increased 1.3% in Portugal and dipped 0.2% in Ireland.

Germany’s indices of leading and coincident economic indicators rose in June by 0.2% and 0.3% according to the Conference Board.  The South African leaders index slid 0.6% in June.

Dutch consumer confidence improved five points in August to a reading of minus 33.

News of weaker-than-expected Norwegian mainland GDP growth in 2Q of 0.2% sequentially weighed on the krone, which slid to a five-week low against the euro.

There are central bank policy meetings today in Turkey and Poland.

The Chicago Fed National Activity index and weekly U.S. chain store sales data get released today. Seasonally, we are now in the heart of the August doldrums when many market participants are on holiday.  However, speculation about Fed tapering continues to rattle world financial markets.  FOMC minutes due tomorrow will be combed for clues about the timing of a change in quantitative easing.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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