RBNZ Turns Dovish, with the EU Summit and Inflation to Drive the EUR

Earlier in the Day:

Economic data scheduled for release through the Asian session was on the lighter side this morning, with key stats limited to May retail sales figures out of Japan, while the Kiwi Dollar was in action in the early part of the day, with the RBNZ monetary policy decision and release of the rate statement.

For the Kiwi Dollar, the RBNZ held rates unchanged at 1.75%, which was in line with market expectations. While the RBNZ held steady, the rate statement showed that there was unlikely to be any shift in policy over the near-term, placing downward pressure on the Kiwi Dollar, with key points from the June rate statement including:

• CPI inflation is likely to rise due to higher fuel prices in the near-term, with inflation expected to gradually rise to the Bank’s 2% annual target off the back of capacity pressures.
• Ongoing spending and investment domestically, by both households and government is expected to support growth, though weaker 1^st quarter growth implies marginally more spare capacity in the economy than had been anticipated.
• Global economic growth is expected to support demand for NZ goods and services, while the outlook has been tempered slightly by trade tensions in some major economies.
• The Bank’s outlook for the NZ economy remains in line with the May monetary policy statement, with employment around its sustainable level and consumer prices remaining below the 2% mid-point of the bank target, requiring continued supportive monetary policy for some time to come.

The Kiwi Dollar moved from $0.67954 to $0.68042 upon release of the statement and decision to hold rates steady, before easing to $0.6776 at the time of writing, down 0.22% for the session, the lack of any forward guidance on a shift in policy ultimately weighing on the Kiwi.

For the Japanese Yen, retail sales rose by just 0.6% in May, year-on-year, falling well short of a forecasted 1.3% rise and April’s 1.5% increase.

• Clothing and apparel sales slumped by 4.1% year-on-year, with auto sales sliding by 2.8% and sales at department stores and supermarkets also in decline when compared with May of last year.
• Month-on-month, sales slumped by 1.7%, the largest fall since 2016.

The numbers are yet more disappointment for the BoJ and Japanese Government who will have been hoping for stronger wage growth to support consumption and see a pickup in inflationary pressures, the numbers raising concerns over the economic outlook, particularly as the U.S enters a trade war with China and the EU.

The Yen moved from ¥110.225 to ¥110.219 upon release of the figures, before moving to ¥110.23 against the Dollar at the time of writing, up 0.03% for the session.

Elsewhere, the Aussie Dollar was up 0.22% to $0.7356, with risk appetite slowly returning to the market, though plenty of caution remains as Trump sends the market mixed signals on how China’s investments into U.S tech companies will be handled.

In the equity markets, the Nikkei was in the red at the time of writing, down 0.28%, while the CSI300 and Hang Seng found some much needed support, the pair up 0.27% and 0.5% respectively. For the ASX200, the index was up 0.13%, recovering from losses at the start of the day.

The Day Ahead:

For the EUR, it’s a busy day ahead, following a relatively quiet first half of the week, with July consumer climate figures and prelim June inflation figures out of Germany, prelim inflation figures out of Spain and Italy and the ECB’s economic bulletin scheduled for release.

Softer inflation numbers out of Germany and Italy will likely offset any uptick in consumer prices in Spain, with consumer confidence figures out of Germany also expected to influence ahead of the ECB’s economic bulletin.

How the ECB views the economic outlook and inflation will be of interest following marginally better June private sector PMI numbers released last week, with any upbeat sentiment towards inflation and the economy raising the prospect of an end to the QE program by the end of the year, though much will depend on how the trade war pans out.

Outside the data, the EU Summit will need to be considered, with EU Leaders expected to have trade high on the agenda, while also discussing Brexit, the Summit is also the Italian coalition government’s first that will bring the issue of migration to the fore.

At the time of writing, the EUR was flat at $1.1566, with plenty of drivers for the EUR today.

For the Pound, there are no material stats scheduled for release, leaving the Pound in the hands of Brexit, as the EU Summit gets underway, BoE MPC members acknowledgment of the continued risks that the UK economy faces from Brexit having weighed on the Pound mid-week.

Outside of the EU Summit, MPC member Haldane is scheduled to speak late in the day that could provide further support for the Pound following his vote in favour of a rate hike last week.

At the time of writing, the Pound was down 0.01% to $1.3112, with Brexit and MPC member chatter the key drivers through the day.

Across the Pond, stats through the day include finalized 1^st quarter GDP numbers along with the weekly jobless claim figures. Barring a material deviation from 2^nd estimates, the Dollar will unlikely see a material move, with the weekly jobless claims figures unlikely to be too influential as the markets continue to focus on noise from the Oval Office.

Outside of the stats, FOMC member commentary could also provide direction for the Dollar, with members Bullard and Bostic scheduled to speak through the day.

At the time of writing, the Dollar Spot Index was down 0.04% to $94.248, with the Oval Office and today’s stats the key drivers through the day.

For the Loonie, it’s another quiet day ahead, with no material stats scheduled for release, leaving the Loonie in the hands of trade war chatter and the direction of oil prices, the uptrend in oil prices easing downward pressure on the Loonie through the current week, the Loonie up by 0.07% to C$1.3332 at the time of writing.