Light Flows In Holiday Trade
A holiday across South East Asia and the Middle East kept flows to a minimum overnight, however a moderate risk-off mood took hold nonetheless. A closely-watched US Q2 earnings report announced after the US close showed a significant downgrade to future earnings guidance, and this undermined European and Asian equities overnight. Earlier, NZD temporarily weakened after the first public speech by Graeme Wheeler in his capacity as newly-appointed RBNZ Governor. Headlines taken out of context were largely to blame. Wheeler did raise the rhetoric a notch however, making it very clear that the Bank would prefer to see a lower exchange rate but only “provided it can be achieved without damaging price and financial stability”. Wheeler rejected the idea of cutting interest rates purely to induce currency weakness and proceeded to dismiss other ideas also circulating in the local media – he flatly rejected the notion of New Zealand embarking on a round of quantitative easing or imposing capital controls. He retained the right to use FX
intervention however, but there was no indication that he is any more ready to use the tool now than his predecessor Bollard was over the past few years. So far, there is little indication that the handover to the new governor will impact NZDUSD. However we will have a fuller picture when the December monetary policy report is published, as this will contain the first quarterly forecasts prepared under Wheeler’s governorship. The first estimate of US GDP is due shortly, and our US economists expect an above-consensus print.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank