Kiwi falters as global markets rally on easing in Ukraine

Kiwi falters as global markets rally on easing in Ukraine tensions.

By Garry Dean (Sales Trader, CMC Markets New Zealand)

Risk assets have posted significant rallies in overnight trading as we start the week, with an easing of tensions seen in Ukraine. Russia have said that a dispute over its humanitarian aid convoy has been settled, a major move forward given the conflict reported over the weekend. European and US equity markets have rallied strongly, with gold trading back below $1,300, and oil falling to its lowest level in more than a year. While the easing of geopolitical tensions overnight is encouraging, we have seen Russian tensions oscillate over the past few weeks, so traders shouldn’t become too complacent. The overnight performance of the Kiwi has been disappointing however, as it failed to hold above 0.8500, and opens Tuesday morning just above 0.8470. Support is seen initially at the 200-day moving average of 0.8466, with longer-term support at 0.8400. Major resistance is currently seen at 0.8530.

We see the release of Q2 Producer Price numbers this morning, followed by RBNZ 2-year inflation expectations later this afternoon. A decline in both PPI input and output prices is expected, with a potential decline in the 2-year inflation rate forecast likely to reinforce the view of a pause in rate increases extending to Q1 next year. Tuesday night also sees the latest GlobalDairyTrade auction result. With prices down 40% since February, the outcome of tonight’s auction should see further volatility in the Kiwi.

The release of minutes from the latest US FOMC meeting are due on Thursday morning, and likely to show a continued dovish stance despite recent dissenting comments from some members. While continuing to wind-back QE, the prospects of an earlier rate hike were reduced last week with the trend of weak US retail sales continuing into July, and weaker employment numbers seen also. This could see the US Dollar give back some of the gains posted last month, as these moves were built around an earlier start to the tightening cycle. Fed Chair Janet Yellen and ECB President Mario Draghi will both be speaking at the annual meeting of world central bankers in Jackson Hole at the end of the week, with discussion around the timing of QE from the ECB likely to dominate the headlines.
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