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Euro Finally Breaks 1.28, RBNZ Cuts 100bp (Euro Open)

Thursday, 23 October 2008 03:16:32 GMT  |  Luis Gil, DailyFX.com

Asian trading saw the Euro break the 1.2800 mark as volatility saw investors flee towards the US Dollar and away from Europe. In a series of sensational moves, the New Zealand Dollar made a surprising bounce upward after its central bank cut rates by 100bp.

Key Overnight Developments

• Euro Hits Two-Year Low Against Dollar
• RBNZ Cuts Rates by 100bp


Critical Levels



The Euro continued to plummet against the US Dollar during Asian trading, hitting a two year low of 1.2726. Prior to that, the Pound sank to a five-year low of 1.6137 during the American trading session as Bank of England Governor confirmed that the UK is indeed in a recession.


Asia Session Highlights



Thursday’s Asia session saw the Reserve Bank of New Zealand cut its benchmark Interest Rate by an expected 100bp, bringing the official cash rate down to 6.50%. Kiwi traders saw the South Pacific currency bounce on the announcement after RBNZ Governor Alan Bollard stated that future rate cuts depend on “evidence of actual reductions in domestic cost pressures.”

Homes became 3.6% more affordable in Australia as the CBAHIA House Affordability Index rose to 109.1. The move comes as housing costs in the region fell 1.9% in the 3Q. Housing may continue to see their affordability rise once the RBA’s rate cuts begin streaming through the real economy.

Foreigners expressed their distaste for Japanese financial assets as Buying of Japanese Stocks and Bonds took a dual hit over the last seven days. To the contrary, the Japanese citizens sought to purchase assets abroad as Buying of Foreign Stocks increased for a fifth consecutive week. Adjusted Merchandise Trade Balance strengthened from the month prior for the second time since April. Despite this bounce, exports still rose less than expected as cooling global demand stiffened the need for Japanese electronics and technology.


Euro Session: What to Expect



French Business Confidence is expected to drop to 89 along with the Production Outlook at -45. Such declines would be the sixth consecutive drop in each of the metrics. The moves come as Consumer Spending is expected to weigh in on business demand, falling -0.2% in September according to forecasts.

The highlight of Thursday’s calendar will probably come in the form of the Euro-Zone Current Account. With global demand continuing to spiral down, European exports may see a substantial decline in the month, forcing the metric to come in negative for a fourth consecutive month. Italian Trade Balance figures are also expected to continue its decline for its 21st straight month.

British Retail Sales were originally expected to come in at a monthly -0.6% and yearly 2.2%, but have since been revised downward to -0.7% and 2.0%, respectively. As August unemployment saw itself for a third consecutive month, the fall in purchases for September is likely. European Industrial Orders are expected to have increased in the month of August at a slower pace than it had in the month prior.


To contact Luis regarding this or other articles he has authored, please email him at lgil at dailyfx dot com .

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