Sterling Struggles To Find A Bid, While RBNZ Can’t Knock Kiwi Down

The US dollar has found steadier footing today after trading heavily yesterday. 

There are two main themes. The first is sterling’s heavy tone. After closing the North American session 0.5% higher yesterday to snap a five-day losing streak, it has come under new pressure today.  

The ostensible trigger was the RICS house price balance, which slumped to 5% from a revised 15% in June (initially 16%)It is the lowest reading in three years. It plays on concerns that commercial and residential property prices are not waiting to see if the bookmakers who have reportedly tightened up the odds that Article 50 is not triggered until 2018, if at all, are correct.  

Also, there seems to be an asymmetrical response by sterling. The market seems more eager to sell sterling on disappointing news than to sell it on favorable news. There was much trepidation, for example over the third leg of this week’s bond buys, and it was for the longest duration.It went off without a hitch, but sterling slipped back down to finish just above $1.30. Sterling has not closed below $1.30 since July 8.Intraday resistance is seen in around $1.3025. 

On the other side of the spectrum is New Zealand. The Reserve Bank of New Zealand delivered a 25 bp cut in the cash rate, and the New Zealand dollar rallied. It shot up from near $0.7200 to $0.7340 in less than five minutes. It has since trended lower, and ahead of the start of the North American session, it is trading near $0.7240. 

Not only was the rate cut widely anticipated, but in recent days, there was talk of the chances of a 50 bp rate cut. The derivatives market appeared to discount about a 20% chance of a 50 bp move, which Governor Wheeler indicated he did not seriously consider. The RBNZ’s path for the 90-day bill implies a trough in the official cash rate of 1.50%-1.75% rather than 2% previously. This is a little above what the market prices implied. Still, officials made itclear that the strength of the currency was a challenge. By suggesting that the inflation target is more important than ever, it points market participants which data to pay particular attention to going forward.