Overnight Headlines

*USD reversed some of its losses, rising 0.23%, bid today

*US equities closed mixed even as Q2 earnings continued to beat

*Crude oil dropped for a second day, with increasing supplies coming

*NZ CPI much stronger than expected (3.3% y/y vs expected 2.8%)

USD pushed above the post-Fed highs at 92.40 and advanced broadly against most of its peers. EUR fell for its third drop this week and is trading just above 1.18. GBP found a bid after hawkish comments from MPC member Saunders and positive jobs data but closed lower on the day. Near-term support sits at 1.38 while resistance remains at last week’s high at 1.3903. NZD is the best performing major today on the back of hot inflation data.

US equities ended a mixed day with the tech-heavy Nasdaq suffering losses of 0.7%. But the Dow managed to stay in the green +0.15% and record a fresh all-time high. Asian shares headed lower as profit-taking in TSMC, the chip giant, weighed on other tech and broader risk sentiment. A new surge in Covid infections in Japan is also hurting the Nikkei.

Market Thoughts – US retail sales to finish the week

It’s been an exceptionally busy week with central bank meetings and significant data points. We wrap up with the key release of US retail sales which will tell us if the US consumer is shifting away from goods spending towards services. Analysts expect a reading of -0.5% after -1.3% in May. Autos could be a significant drag this month as carmakers fail to keep up with demand.

Cautious comments from Fed Chair Powell on Wednesday, even in the face of a blockbuster inflation report, slowed the dollar rise. But low yielding currencies like EUR and JPY might find it tough going in the near-term. This is beacuse the start of Fed policy normalisation is still set to happen well ahead of the ECB and the BoJ. They left policy unchanged as expected earlier today.

Chart of the Day – Kiwi CPI sizzles, NZD kicks on

With headline CPI printing well above estimates overnight, more banks in New Zealand are ratcheting up their forecasts for earlier rate rises this year. ANZ expects hikes in August and November and at three more meetings in 2022 taking the OCR to 1.75%. Inflation expectations are increasing rapidly and core inflation is at the top of the RBNZ’s target band, though the bank does see the recent moves as temporary. The jobs report will be released on 4 August so this may be needed to seal a move over the summer.

We focused on AUD/NZD earlier in the week as the better play on kiwi strength. NZD/CHF is a take on the high/low yielder and is approaching the top of the descending channel formed in March. We took out the 200-day SMA at 0.6410 earlier today with the upper part of the channel at 0.6466. Bullish momentum is picking up on the MACD but any breakout will need to push above the recent spike high at 0.6546.