Market Update 20/08/2024

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Stock markets began the week on a positive note, with attention shifting to upcoming policy meeting minutes and the Fed’s Jackson Hole Symposium later this week. The S&P 500, Euro Stoxx 50, and FTSE 100 all gained about 0.6%. Meanwhile, the US 10-year yield dropped slightly by 1.9 bps to 3.86%.
 
Comments from Fed officials reinforced the expectation that the easing cycle will begin in September. Daly, a voting member, expressed increased confidence that inflation is under control, while Minneapolis Fed President Kashkari mentioned that a weaker job market could pave the way for a rate cut in September.
 
The USD has been under pressure in recent months, with the DXY falling from 106 at the end of June to the high 101’s now. While this range might not seem significant, it’s the lowest level since December 2023. In the short term, it certainly appears that the USD is oversold, but on a broader scale, it remains within one standard deviation. This suggests there could be further declines in the lead-up to the November elections. However, in the short term, a slight rebound wouldn’t be surprising.
 
NZDUSD begins the day on a stronger note, having not only regained all the losses from the post-MPS but also added to them. With that event now in the past, market is now turning its attention to global factors, including a rebound in risk assets and a weaker USD, as they anticipate Fed rate cuts starting next month. In the short term, the NZDUSD tested resistance at 0.6110 yesterday. If it breaks through, we may see increased selling around this level. Support levels are at 0.6040, 0.5980, and 0.5907, while resistance levels are at 0.6110, 0.6154, and 0.6180.
 
NZDAUD is holding steady around 0.9080. We’re awaiting the RBA Minutes this afternoon, if they lean hawkish, this cross could face pressure after 1:30 pm, with buyers likely stepping in around the 0.9000 level. Support is at 0.9000 and 0.8950, while resistance levels are at 0.9125, 0.9165, and 0.9220.
 
NZDJPY has inched up to 89.60, with the yen making further solid gains. USDJPY dropped as much as 1.7% from last week’s close to 145.20 before rebounding, currently down 0.7% at 146.55. The yen’s ongoing volatility is driven by mixed views on its future direction and uncertainty ahead of the BoJ Governor’s special session at Parliament on Friday to discuss the July rate hike.
 
NZDGBP has recovered to 0.4700, while NZDEUR is back at 0.5515 and the pair is expected to follow a similar trend today, but if it remains below the key 0.5525 level, the upside potential seems limited. However, if it breaks above 0.5525, it could aim for 0.5555 in the short term. Support levels are at 0.5475 and 0.5455, with resistance at 0.5525, 0.5555, and 0.5600.
 
The week continues with a relatively quiet start, with July’s REINZ data and New Zealand’s Trade Balance as the main highlights today at 10:45 am, and European CPI in focus tonight at 9:00 pm. On the central bank front, RBNZ’s Hawkesby speaks this morning, and the RBA minutes are due this afternoon. It seems this the highlight of the week, expecting the minutes to have a hawkish tone, particularly looking at how close the board came to tightening earlier in the month and what the key arguments were.

 

Here are the latest mid-market rates:

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