KIWI AND STERLING BOOSTED BY POSITIVE ECONOMIC DATA
The New Zealand dollar rose sharply today after data showed that the economy did better in the second quarter than traders had expected. Data from the statistics office showed that the GDP in the second quarter rose by 2.8%, which was higher than the 2.5% traders were expecting. This was also higher than the 2.7% annual Q2 average. On a QoQ basis, the economy expanded by 1.0%, which was higher than the expected 0.8%. The growth in the quarter was broad-based with 15 out of 16 sectors recording growth.
The Swiss franc strengthened slightly against the US dollar after the Swiss National Bank (SNB) released the monetary policy assessment. The bank left interest rates unchanged at -0.75%. The target for the three-month libor rate too was left unchanged at between -1.25% and -0.25%. The inflation forecast for 2018 remained at 0.8% while that of 2019 and 2020 were lowered to 0.8% and 1.2% respectively. Initially, the guidance for 2019 and 2020 was 0.9% and 1.2% respectively. The GDP guidance for 2018 remained unchanged at between 2.5% and 3%. For the fifth month, the statement said that the franc was overvalued against the peer currencies. On this, the bank said:
Since the monetary policy assessment of June 2018, the Swiss franc has appreciated noticeably, against the major currencies as well as against emerging market currencies. The Swiss franc is highly valued, and the situation on the foreign exchange market is still fragile. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary remain essential in order to keep the attractiveness of Swiss franc investments low and thus ease pressure on the currency.
The rate decision by the SNB came as the Norwegian central bank raised interest rates for the first time in more than seven years. This decision was expected by key economists surveyed by Reuters.
The sterling continued the upward momentum, supported by the recent flow of positive economic data. After yesterday’s positive inflation data, the retail sales numbers reported today were better than those expected by the market. The headline retail sales numbers rose to 3.3%, which was higher than the expected 2.3%. This was the second month in a row that the retail sales were above 3%. The core retail sales, which strips the volatile products rose by 3.5%, which was higher than the expected 2.5%. The ONS said that the upbeat retail sales were contributed to by the increase in food purchases mostly because of summer’s heatwave. It was also due to the increase in the purchases of television sets during the world cup.
This happened as the Brexit negotiations continued. At an informal summit in Austria, Theresa May rejected a plan offered by the European Union. The plan by Michel Barnier is to create a so-called Irish Backstop that would guarantee no return to a hard border in Ireland. Theresa May’s Chequers plan called for a complex method for the Irish border that would allow the UK to collect the EU’s customs. She also proposed a free trade area that would exclude services while ignoring EU’s market obligations such as those on free movement of people and contributions to the EU. While these divisions remain, there are hopes that a consensus will be done by autumn.
The NZD/USD pair reached a double bottom on Wednesday last week when it reached a low of 0.6500. Since then, the pair has been moving up, and today it reached an intraday high of 0.6660. As shown below, the pair is currently in an upward rally as it tries to form a cup and handle pattern. This is evidenced by the momentum indicator shown below and the double exponential moving average pattern. Therefore, the pair is likely to continue moving up until it finds resistance at the 0.6720 level.
The GBP/USD pair continued the rally started in mid-August when it reached an intraday high of 1.3216. This was the highest level since July this year. The double exponential moving average shows that the pair has more room to move up. This is confirmed by the momentum indicator and the RSI as shown below. However, the pair will likely find resistance at the 1.3270 resistance level.
The EUR/USD pair moved slightly higher today but remained within the narrow range it has been in the past few days as traders wait for direction from the Fed next week. It reached an intraday high of 1.1700. This price is slightly above the 28 and 14-day EMA. The symmetrical triangle pattern that has been forming appears to be reaching an apex. This means that a major break could happen within the next few days.