Market Update 16/09/2024

Welcome to our daily market update, where we help keep you informed on the latest happenings in the world of FX. If you have any questions or would like anything further explained, please don’t hesitate to reach out to your account manager or email info@cafx.com

Lower rates provided a boost to US equities, with the S&P 500 gaining 0.5%, rounding off a solid 4% rebound for the week, nearly erasing the prior week’s losses. Meanwhile, the Euro Stoxx 600 index advanced by 0.8% and the FTSE 100 was 04% higher. The yield on the US 10-year Treasury slipped by 2 basis points to 3.65%.
 
US consumer sentiment measured by the University of Michigan survey, edged up to a four-month high of 69.0, driven by improvements in both current conditions and future outlooks. Year ahead inflation expectations dipped slightly to 2.7%, marking the lowest level since 2020, while the five-year inflation outlook increased by one-tenth to 3.1%.
 
Following the weekend, China’s August activity data showed weaker-than-expected results across key areas like industrial production, retail sales, and investment. This adds to signs of slowing growth, with GDP likely falling short of the government’s 5% annual target. Prompt additional stimulus might be necessary to reach that goal.
 
The focus this week is all on the Federal Reserve, with their interest rate announcement due at 6:00 am on Thursday NZT. Markets are debating how to price in the Fed’s decision – will it be a 25 or 50 bps cut? Historically, the Fed has only started with cuts larger than 25bps in three instances, Black Monday, the Dotcom crash, and the Global Financial Crisis.
 
NZDUSD underperformed and ended the week below 0.6160. For context, NZDUSD traded lower in July, moving from 0.6150 to 0.5850, then rebounded in August to reach a high of 0.6300. In September, the pair has drifted lower, testing 0.6100, and starting this week near the lower end of the month’s range. We’ve seen this level before. This week’s Federal Reserve decision will likely shape the market’s direction moving forward. If the Fed opts for a 25 bps cut, the USD could strengthen as risk appetite declines due to higher borrowing costs. Alternatively, the move could be seen as a vote of confidence in global growth, prompting an equities rally and a weaker USD, which may lift the NZD. The outcome will depend on how the market is interprets the Fed’s decision. Key levels to watch are the 200-day moving average support at 0.6100 and resistance near the previous highs around 0.6300.
 
NZDAUD dipped slightly, ending the week just above its low at 0.9180. The AUD has been supported by a more hawkish RBA compared to the dovish stance of the RBNZ, along with the effects of lower iron ore prices and higher milk prices. In the long run, interest rate differentials will balance out and NZDAUD will be down to 0.9100. 
 
NZDJPY weakened to 86.7 as JPY outperformed, helped by falling US Treasury yields. Meanwhile, USDJPY dropped 0.7% for the day settling at 140.85.
 
Both NZDGBP and NZDEUR declined by around 0.5%.
 
The upcoming week features several important economic releases. The FOMC meeting will be a major event to watch. Locally, we’ll pay close attention to New Zealand’s Q2 GDP report, set for Thursday at 10:45 am NZT. Internationally, we’ll also see policy updates from the BoE and BoJ, CPI data from Canada, the UK, and Japan, US retail sales figures, and Australia’s monthly employment report.
 

 Here are the latest mid-market rates:

 
Chart of the Day