Kiwi Extends Rally Even After Rate Cut

USD

The U.S. dollar has been able to recoup some of yesterday’s losses overnight, but the Bloomberg Dollar Spot Index remains near a seven-week low.  There was no major data released yesterday or overnight in the United States, so the greenback is benefiting from developments abroad.  Poor economic data released in the France and the United Kingdom have provided the catalyst for the dollar’s rebound against its European rivals.

This morning’s economic docket showed that initial jobless claims were little changed, with 266K requesting new benefits, down from 267K in the week prior.  Initial jobless claims continue have continued to hold near a four-decade low for most of this year, highlighting a strength for the labor market.  Indeed, filings have been below 300K for 75 straight weeks, the longest stretch since 1970.  The highly anticipated advanced retails sales reading tomorrow will round out the week.

NZD

The New Zealand dollar has rallied to a one year high against the U.S. dollar after the Reserve Bank of New Zealand took less dovish action than some had expected.  In a widely expected move, the RBNZ cut interest rates by 25 basis points to a record low of 2.0%.  However, about a quarter of market participants expected the central bank to cut rates by 50 basis points in an effort to boost weak inflation leading to additional gains in the Kiwi.  The NZD/USD is now at its strongest level since May of 2015.

While the RBNZ doesn’t target the exchange rate, the longer it stays elevated, the more it damps tradable inflation and makes it harder for the central bank to meet its mandate, Assistant Governor John McDermott said in an interview late yesterday.

GBP

The British pound retraced its gains from yesterday after a report showed that home sales experienced their fastest decline since 2008, further proof that effects of the Brexit vote are making their way into the real economy.  The Royal Institution of Chartered Surveyors’ showed that sales fell the most since the financial crisis.  Prices of properties that did sell continued to rise, but at the slowest pace in three years.  British stocks, particularly housing related equities, have fallen sharply after the release.