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New Zealand Dollar Outperforms, Yen Slumps as Risk Rebound Continues

New Zealand Dollar Outperforms, Yen Slumps as Risk Rebound Continues

2010-07-09 04:51:00
Ilya Spivak, Sr. Currency Strategist

Key Overnight Developments

New Zealand Dollar Outperforms on Rising Rate Hike Expectations
Japanese Yen Sold as Risky Assets Extend Gains in Asian Trade

Critical Levels


The Euro and the British Pound were traded lower in overnight trade as markets digested the risk-driven rally in US hours. The single currency slid 0.1 percent while sterling lost 0.2 percent against the US Dollar.

Asia Session Highlights


The New Zealand Dollar outperformed in overnight trade, rising against all of its major counterparts as traders upgraded their outlook for RBNZ monetary tightening. Indeed, a Credit Suisse gauge of priced-in policy expectations showed traders now see an 84 percent chance of a rate hike this month, up 8 points from yesterday to mark the largest one-day upswing in three weeks.

Meanwhile, the Japanese Yen tracked broadly lower as risk appetite remained supportive, boosting demand for carry trades funded cheaply in the perennially low-yielding currency. The MSCI Asia Pacific regional equity benchmark index rose 0.7 percent, with positive cues from Wall Street reinforced after the Bank of Korea raised interest rates for the first time since the 2008 credit crunch and subsequent global recession.

Euro Session: What to Expect


The UK Visible Trade Balance deficit is expected to narrow for the first in three months to print at -7.0 billion pounds in May following a reading at -7.3 billion in the previous month. The outcome may not prove market-moving however as more timely indicators point to slowdown in exports in the second half of the year. Indeed, PMI figures showed the manufacturing sector slowed for the first time in four months in June on weakening demand from continental Europe – the UK’s largest export market – while the British Pound hit an 11-month high over the same period, making British-made goods comparatively more expensive and thereby unattractive to foreign buyers. Separately, Producer Price Index figures are set to show the wholesale inflation rate held unchanged at 5.7 percent in the year to June.

The final revision of Germany’s Consumer Price Index is set to confirm the annual inflation rate slowed to 0.9 percent in June, cementing a flat outlook for monetary policy in the near term. Indeed, ECB President Jean-Claude Trichet said price pressures remain “contained” over the medium term and inflation expectations are “firmly anchored” despite a possible upswing later in the year following yesterday’s rate decision, effectively dissipating the potency of CPI figures as a leading indicator for monetary policy in the months ahead.

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