Yes, the word is “unjustified”! The missing element in the Financial Stability Report created a nightmare for traders. Market sold the Nzd hard after RBNZ released the Financial Stability Report this morning. The authority proposed lending curbs on Auckland housing from Oct 1. Nzd fell from 0.7363 to 0.7318. To us, these curbs from RBNZ are not new. They have been repeating about tightening macro-prudential policies and Governor Wheeler said the changes to the LVR policy were aimed at targeting investors in the Auckland region.
The missing element, “unjustified”, in the RBNZ announcement caught market by surprise. RBNZ said the Nzd is still above the sustainable level but omitting the word “unjustified” caused the Nzd bounce.
Governor Wheeler then appeared before the Parliament Select Committee and said Nzd level is unsustainable and UNJUSTIFIED! Nzd fell from 0.7402 to 0.7370. According to our strategist Bipan, the reliance on macro prudential measures does not rule out potential rate cuts in the medium-term as the RBNZ is likely to face growth pressures as domestic demand remains constrained and dairy prices continue to fall. Bipan believe the Kiwi still a sell here in our as we look for the 0.7200 mark.
In late morning, we saw Nzd back to 0.7400 on back of short covering.
There wasn’t much in AudUsd. The market paid more attention to the AudNzd cross. The cross traded 1.0895 high to the low of 1.0771. Our trader Sam said there should be some value in the cross and long ahead of 1.0750 with a stop below the 200 DMA, which is at 1.0712.
UsdJpy had some excitement but didn’t last long. The Usd popped to 120.10 following the Nzd drop then returned to print low of 119.74. After that, interest died and Usd settled 119.85-90. After opening bell, Japanese banks sold UsdJpy down to 119.70. I am told buy orders are planted from 119.70’s to 119.50 and stop sell orders kick in below 50. Hearsay large stop sell orders at 119.00.
The Rinban was weak, 10’s JGB sold aggressive into the BOJ and we look for weak open for JGB when market reopens.
EurUsd stayed bid throughout – we saw demand from North Asia in the 1.12-teens. Chatter of bids below 1.1190 and some short-term accounts left stop buy orders into the 1.1290’s.
UsdCad on the side line this morning. Several guys have spoken of buy orders below 1.1980 but offers are light. Spreads of 2-year Canadian bonds and UST show that UsdCad is of fair value (low 1.20’s). From here, it will probably track the oil price.
Local banks have been capping the UsdThb this morning, I heard the offers came from corporate names. On charts, stochastics are indicating exhaustion – think we might see some consolidation for now. Global position index is show excessive long Thb. Move below 33.60 might see some positions reduced.
On the political space, PM Prayut said he would stay in power if the draft charter is rejected by the public. He said he would not commit himself to how long he would cling to power, but will oversee the new drafting process for the constitution. As I mentioned before – the big risk is delay in the elections. So far investors’ confidence has been positive. There is an article in today’s Thai papers that Mazda has designated Thailand as its spare-parts distribution hub for ASEAN and global exports.
MSCI will announce next month whether it will add China A-shares, mainland-listed stocks whose purchase by foreigners has been limited, to its widely tracked emerging-markets index.