Trade Deficit in New Zealand Grows Despite Boost in China Exports

Despite a boost in exports to China, New Zealand’s trade deficit broadened in May. The deficit increased from NZ$17.02 billion to NZ$17.12 billion, falling just short of economists’ prediction of NZ$17.24 billion.

Concurrently, the monthly trade surplus shrank from NZ$236 million to NZ$46 million. A substantial rise in milk powder, butter, and cheese exports (+21%) contributed to the export growth, while crude oil (-52%) and logs, wood, and wood articles (-15%) exports experienced declines.

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Inflation and Recession Worries Take Center Stage This Week

US
The US Federal Reserve (Fed) is anticipated to end its rate-hiking campaign shortly. Attention will turn to Personal Consumption Expenditures (PCE) readings, hoping for a decline in inflation. A decrease in inflation may boost swap futures’ confidence in one more Fed rate hike. Wall Street will keep a close eye on the Conference Board’s consumer confidence reading and Friday’s Personal Income and Spending data release.

Key Fed events include Fed’s Williams speech at the Bank for International Settlements, Fed Chair Powell’s address at the ECB’s global banking forum in Portugal, and the announcement of annual banking stress test results.

Eurozone
ECB President Christine Lagarde’s early-week appearances will garner significant attention due to recent interest rate hikes amidst ongoing inflation. Investors will closely watch the flash Harmonized Index of Consumer Prices (HICP) data on Friday.

The ECB has cautioned that significant data improvement is required to prevent another rate hike next month. A minor shift in the opposite direction could prompt the ECB to increase rates again in July before reevaluating in September. Inflation data from individual countries earlier in the week may offer insights into Friday’s expectations.

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Xi Jinping of China Eases Foreign Investor Concerns Over Policy Uncertainties

In a bid to alleviate concerns and uncertainties, Chinese President Xi Jinping has recently assured foreign investors of his government’s unwavering commitment to addressing economic issues and unpredictable policy-making. Amid a backdrop of global apprehension, Xi underscored China’s dedication to development, openness, and the protection of foreign investors’ rights during his recent visit to Beijing, as reported by Xinhua News Agency.

China’s economy has been grappling with a slower recovery pace, particularly post-Covid Zero policies. This has led to intensified efforts by the nation to attract foreign investors. Compounding this situation are the endeavours by Western powers, including the US and Europe, to reduce their reliance on China, thereby creating an air of uncertainty about the country’s future growth prospects.

During the “Summer Davos” dialogue in Tianjin, Chinese Premier Li Qiang spoke emphatically about China’s readiness to collaborate with global entrepreneurs. He cautioned against the politicization of economies, urging CEOs to ensure the security of their supply chains, a sentiment he echoed during his recent visit to Germany.

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USD/JPY steadies near YTD peak below 145.00 ahead of US PCE Index

The USD/JPY currency pair is currently holding steady near its year-to-date (YTD) peak, hovering just below the 145.00 level. This comes as the pair trades comfortably in the 144.55-144.60 region, a clear sign of its recent upward momentum. The pair’s movement has been closely monitored by investors and traders alike, especially given its performance in the past few weeks.

The surge of the USD/JPY beyond the 145.00 mark has led to speculation about a potential intervention from Japanese authorities. These speculations have caused a shift in investor sentiment, leading them to temper their bullish positions on the pair. Adding to this, the Japanese Finance Minister issued a warning about potential government actions if the Yen weakens excessively. This, coupled with a generally cautious market atmosphere, has provided some support for the JPY.

Investors are also grappling with concerns about the economic challenges that could arise due to increasing borrowing costs. These concerns have been further amplified by less than impressive macroeconomic data coming out of China. This, combined with a somewhat subdued action in the US Dollar, has put a cap on the USD/JPY pair’s movement.

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With recovering oil prices and a struggling US Dollar, USD/CAD is declining towards 1.3200 before Canada’s PMI

Amid the recovery in oil prices and ongoing struggles of the US Dollar, the USD/CAD pair is experiencing a downward trend, moving towards the 1.3200 mark ahead of the release of Canada’s PMI. The USD/CAD has slid to 1.3235 as traders of the Loonie pair show determination to break through the stagnation that has lasted for three days. This movement was observed during the early European trading hours on Tuesday, following a period of inactivity during the Asian trading hours.

The recent losses experienced by the Loonie pair can be attributed to a surge in Canada’s principal export commodity, coupled with a pullback in the US Dollar Index (DXY). WTI crude oil, for instance, recorded slight gains at around $70.30, reflecting the impact of recent announcements from Saudi Arabia and Russia hinting at further supply cuts. These gains in the energy benchmark are also fueled by the anticipated increase in oil demand from the US and China, as these two economic powerhouses strive to resolve their differences.

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US Dollar Index: DXY surpasses 103.00 amid Fed forecasts and China Concerns pre-US data

The US Dollar Index (DXY) oscillates near a weekly high of around 103.40, as market participants anticipate key US data and risk factors that could sustain the bullish trend of the DXY during Thursday’s early Asian session.

The index maintains its momentum after a three-day winning streak, primarily driven by concerns surrounding a hawkish Federal Reserve (Fed) and fears induced by China while downplaying weaker US data. According to recent Federal Open Market Committee (FOMC) minutes, nearly all members agreed on halting the rate hike trajectory, with some policymakers leaning towards a July rate increase of approximately 0.25%. This suggests a hawkish tilt at the US central bank, fueling the US Dollar Index.

Meanwhile, China’s disappointing Caixin Services PMI for June, which fell to 53.9 from 57.1, adds to escalating US-China tensions. Beijing’s fresh warnings of additional trade restrictions dampen sentiment and boost the DXY. Recent announcements from China about sudden controls on exports of certain gallium and germanium products, effective from August 1, represent the latest response to US restrictions on AI chip shipments to Beijing.

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USD/CAD Hits New 3-Week High Above 1.3370 as Investors Eye Canada/US Job Data

The USD/CAD pair has recently reached a new three-week high, hitting 1.3375 during the London trading session. This rally of the Loonie asset comes in spite of the prevailing weakness in the US Dollar Index (DXY), rising oil prices, and the anticipated additional interest rate hike from the Bank of Canada (BoC).

In Europe, S&P 500 futures have continued their downward trend initiated on Thursday. This came after the United States labor market demonstrated more resilience than anticipated, causing market sentiment to turn bearish. Investors are currently exercising extreme caution as they await the upcoming second-quarter result season and further labor market data.

The US Dollar Index (DXY) has found support near the 103.00 mark. As the Nonfarm Payrolls (NFP) data release draws closer, fluctuations in the USD Index are expected. Analysts at RBC Economics predict that the US jobs report for June will reflect a substantial increase in payroll employment by 260K, albeit a decrease from the +339K in May. However, this still signifies a high level of employment. They also anticipate a slight rise in the Unemployment Rate to 3.8%, calculated separately from the household survey, up from 3.7% in May.

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EUR/GBP Drops to 0.8550 Amid UK Job Woes, Lackluster German Inflation

The EUR/GBP exchange rate has recently experienced a significant drop to 0.8550, marking a significant shift in the currency markets. This movement is not random; it reflects a complex interplay of various factors influencing both the Euro and the British Pound.

From the Euro’s perspective, several elements play a substantial role. Economic indicators such as inflation rates, GDP growth, and unemployment rates within the Eurozone can cause fluctuations in the value of the Euro. Large economies like Germany and France often have a more significant impact due to their size and influence. For instance, the recent unimpressive German inflation data has potentially contributed to the weakening of the Euro.

Political events within the Eurozone, such as elections, policy changes, or unexpected announcements, can also cause substantial currency movements. Changes in the European Central Bank (ECB) policies are particularly impactful. The ECB’s decisions on interest rates, quantitative easing programs, and other monetary policies directly influence the value of the Euro. In this context, the mixed central bank talks and data from the Eurozone have likely played a role in the EUR/GBP rate’s recent decline.

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AUD/JPY Cross Gains Momentum, Surpassing 100-hour SMA after Hitting Two-day High

The AUD/JPY cross is showing signs of momentum, pushing past the 100-hour Simple Moving Average (SMA) and reaching a two-day peak. This trend mirrors the progress of the EUR/USD pair, which is also advancing towards a fresh 2023 high close to 1.1150. The performance of both pairs has been influenced by a general weakening of the US dollar.

The AUD/JPY cross has managed to ascend to a two-day high, notably breaking through the 100-hour SMA. Market observers are now keenly waiting for the release of the Producer Price Index (PPI), an important economic indicator due later today.

Meanwhile, recent data from the US Bureau of Labor Statistics (BLS) reveals that the country’s Consumer Price Index (CPI) fell to 3% year-on-year in June, down from 4% in May. This figure came in slightly lower than the market estimate of 3.1%. Concurrently, core CPI inflation, which excludes unpredictable food and energy costs, slipped from 5.3% to 4.8%. Despite these decreases, both the CPI and core CPI saw monthly increases of 0.2%, not quite meeting analysts’ forecasts.

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EUR/USD Volatility Rises Above 1.1200 Ahead of US Retail Sales

As the anticipated US Retail Sales data for June looms, the EUR/USD pair has experienced a noticeable increase in volatility, crossing the significant 1.1200 threshold. This major currency pair has found a degree of stability as investors from around the globe eagerly await these crucial figures that will undoubtedly influence their financial strategies and future market moves.

During the Asian trading session, S&P500 futures have logged some losses, signaling a cautious sentiment among market participants as we delve into the second-quarter earnings season. Additionally, US equities faced some downturns last Friday, with investors expressing apprehension that corporate earnings might experience fluctuations due to the Federal Reserve’s assertive tightening policies and the strict credit standards established by commercial banks to preserve asset quality.

Simultaneously, the US Dollar Index (DXY) is witnessing a decrease in volatility after forming a base just below the 100.00 level. It is projected that the DXY will exhibit significant movement following the announcement of the US Retail Sales data. The market consensus suggests an increased growth in monthly retail demand at a faster rate of 0.5%, a notable increase from the previous 0.3%. Excluding automobiles, retail demand is expected to see an upturn of 0.3%, a slight rise from the last recorded figure of 0.1%.

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GBP/JPY drops 100 pips below 181.00 due to poor UK inflation, yields

The GBP/JPY currency pair saw a considerable drop of 100 pips to below 181.00, driven primarily by disappointing UK inflation data and weaker Treasury bond yields. The pair dipped further to around 180.80 in the early hours of Wednesday morning in London, reflecting the market’s reaction to these economic indicators. This decline has been amplified by cautious market optimism and a dovish perspective on the Bank of Japan (BoJ).

In June, the UK’s Consumer Price Index (CPI) inflation fell short of expectations, dropping to 7.9% Year-on-Year (YoY), compared to the anticipated 8.2% and the previous figure of 8.7%. A similar trend was observed in the Core CPI, which slipped to 6.9% YoY, moving against market predictions and previous readings of 7.1%.
This downturn in inflation rates has thrown into question the previously hawkish sentiment surrounding the Bank of England (BoE). The uncertainty has contributed to the GBP/JPY’s three-day losing streak, highlighting the sensitivity of the currency pair to changes in economic conditions.

Alongside this, BoJ Governor Kazuo Ueda defended the bank’s easy-money policy at a G20 meeting in India. He acknowledged that achieving the 2% inflation target sustainably remains a distant goal for the central bank, thus reinforcing a dovish outlook.

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USD/JPY Crosses 140.20 Mark in Surge While Investors Anticipate BoJ Rate Decision

During the European session on Friday, the USD/JPY pair demonstrated strong upward momentum, crossing the 140.20 mark. This surge in the exchange rate can be attributed to the diverging monetary policies pursued by the Bank of Japan (BoJ) and the Federal Reserve (Fed). The BoJ has maintained an ultra-loose monetary policy, while the Fed has resumed its tightening policy, leading to the weakening of the Japanese Yen against major currencies.

Positive signs for the US economy were evident in the latest weekly data released by the US Department of Labour (DOL). Initial Jobless claims for the week ending July 15 totaled 228,000, surpassing market expectations of 242,000 and marking a decline from the previous figure of 237,000. This reading represented the lowest level since mid-May. Furthermore, the Philadelphia Federal Reserve Manufacturing Survey showed a reading of -13, better than the consensus of -10. However, Existing Sales for June were disappointing, revealing a contraction of 3.3% MoM after a marginal 0.2% gain in the previous reading.

Investors are eagerly awaiting the upcoming Federal Reserve meeting, with expectations of a 25-basis-point interest rate hike. Additionally, the possibility of another rate hike before the year’s end has gained traction following the release of the latest economic report. As a result, the US Dollar is displaying broad-based strength in the forex market.

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