Summary:

  • FOMC minutes saw the greenback declining across the board
  • NZ dollar tries to take advantage of the weak USD after a weaker than expected retail sales release
  • NZDUSD could be a turning point once the pair breaks a downward trend line

The Asian session has been quite calm as of yet, however larger moves have been seen in Shanghai Composite (CHNComp on xStation5) which is currently down almost 1.2%. On the other hand the Japanese NIKKEI closed the day virtually 0.5% higher after a mild session across the pond where all three major indices ended close to their breakeven lines. In terms of the FX market one could notice that the beginning of European trading is remarkably benign as the US dollar is trading flat licking its wounds made on Wednesday in the aftermath of the minutes. Even as the Federal Reserve seemed to certain with regard to a rate hike in the following month, many of participants cast a shadow on the inflation outlook stressing that the latest weakness could be something more than just transitory effects. The minutes also underlined that persistently below the target inflation may reflect a drop in inflation expectations. In this respect it’s worth mentioning the yesterday’s University of Michigan release which saw inflation expectations going lower.

link do file download linkNZ retail sales missed the forecast in the third quarter, the overall trend remained feeble. Source: Macrobond, XTB Research

Looking beyond the FOMC minutes one needs to mention New Zealand retail sales which grew in the third quarter 0.2% qoq missing the estimate placed at 0.4% qoq though. It was the lowest reading since the mid-2015 while the prior quarter saw a 2% qoq increase. The major culprit of a decline was restaurant sales whereas sales of electrical and electronic goods had the largest pick-up. In turn fuel sales kept falling in the previous quarter marking a 3.2% drop. We could conclude that the underlying trend in retail sales remained fairly limp which could contain any larger rebounds in household expenditures, hence GDP growth could be subdued as well.

link do file download linkThe NZDUSD is trying to benefit from the weaker greenback as the pair is currently trading above its downward trend line. If this momentum is kept, it could lead to a more substantial rebound to the upside where 0.7060 could be the next target. Either way, bear in mind that the ongoing increase in the kiwi is predominantly driven by the feeble US dollar rather than strength of the NZD. Source: xStation5