NZD Lifted by Upbeat RBNZ, UK GDP Watched

The New Zealand dollar strengthened today after RBNZ left the OCR unchanged at 2.5%. The accompanying statement signaled that policymakers were more upbeat toward the economic outlook and the policy rate would likely remain unchanged toward the end of the year.

While the central bank noted that it is likely that the policy would tighten in the future, it made no indication on when the tightening would arrive. Indeed, the performance of the property and the construction markets would be key factors triggering the RBNZ's move. Concerning the currency, the RBNZ described the NZD as 'high' rather than 'overvalued' as in June. Yet, it continued to view strong NZD as a 'headwind for the tradeable sector'. In the last paragraph of the statement, the RBNZ suggested that 'removal of monetary stimulus will likely be needed in the future'. We expect the next move of the central bank's policy would be a rate hike and this might likely take place in the March 2014 meeting.

AUD/NZD extended the long term down trend and drops to as low a 1.1457 so far. Markets are expecting another rate cut from RBA in Q3. After that, the benchmark rates of both RBA and RBNZ would be at 2.50%. Outlook stays bearish as long as 1.1817 resistance holds and AUD/NZD's downtrend is expected to continue to 76.4% retracement of 1.0628 (2008 low) to 1.3793 (2011 high) at 1.1375. We'll start to look for reversal signal below 1.1375.

Looking ahead, European data will be a major focus today. UK will release Q2 GDP advanced reading and is expected to show 0.6% growth. BoE minutes for July meeting was a surprise to the markets and revealed that no more policy makers pushed for QE expansion. A solid GDP figure from UK today will affirm the view that UK's recovery is gathering momentum and will further lower the chance of easier policies. From Germany, Ifo business claims is expected to improve to 106.1 in July, Eurozone M3 money supply is expected to rise 3.0% yoy in June. US will release durable goods orders and jobless claims today.