Overnight Headlines

*USD rebounded on a safe haven bid versus most of its G10 peers

*US stocks pared losses to finish mostly higher

*Gold continues to bounce, now on a five-day win streak

*NZ goes into national lockdown, kiwi collapses down over 1%

USD found a bid yesterday and is in the green this morning. Continued concerns over global Delta infections and a troubling geopolitical situation in the background still linger. Commod-$s underperformed (AUD and CAD) while JPY and CHF were the main winners. USD/JPY fell for a fourth day to the mid-July low around 109.06.

US equities mostly closed at all-time highs with the S&P500 and Dow both up 0.3%. This is the fifth consecutive record close and its 49^th this year. Healthcare and utilities led the way. Energy was the biggest loser with oil sinking. Asian markets are mostly in the red with Covid-19 news still worsening. European futures are flat and US futures point to a lower open.

Market Thoughts – Sour sentiment

The global risk mood remains weak. Friday’s downbeat US consumer sentiment plus disappointing Chinese data have hastened safe haven bids in FX. Although we got the inevitable record close in the S&P500, the Asian session is less convincing. Beijing’s mobility restrictions and regulatory clampdown loom over markets. That is all helping the dollar reclaim some of Friday’s losses as broader risk appetite is driving the market mood.

Just released UK jobs data saw higher wages and lower unemployment. The latter dropped unexpectedly to 4.7% from the prior and forecast 4.8%. Pay growth has been skewed upwards recently as previously furloughed workers return on full pay. This is compared with workers on furlough last year. Job vacancies passed one million with companies scrambling for staff. GBP is uninspired with cable capped by the falling trendline from the June high.

US retail sales are released later today with headline expected at -0.2% m/m, core +0.2% after rising 1.1% in June. Supply chain issues may weigh on the auto sector while consumers are shifting to leisure spending. A strong report will help the greenback. Even a soft set of numbers may just see a mild setback with USD still holding a bid versus commodity currencies.

Chart of the Day – RBNZ still set to hike?

Markets were fully pricing in a 25bp hike at tomorrow’s RBNZ meeting with more than an additional rate move baked in by the end of the year. This aggressive pricing left little room for any upside potential in NZD. Inflation is above the bank’s forecast and labour data is robust. Several local banks have been forecasting two more hikes after today, in October and November.

But the bond market has been jolted this morning by a new national lockdown for three days with some parts of the country put into a seven-day lockdown. There are now less than 20bp of hikes priced for this meeting. NZD/USD has been slammed, down over 1.1% and is trading below the 50-day SMA. Strong resistance sits above 0.70 with the pair back into the range we’ve seen since mid-June. If the RBNZ do not confirm its bullish stance, support comes in around 0.69 and the bottom of the range. Confirmation of 3+ hikes this year and the bank looks through the near-term issues would push NZD towards 0.71.