US Dollar May Rise on Powell Testimony, NZ Dollar Surges

TALKING POINTS – US DOLLAR, POWELL, FED, RBNZ, NZ DOLLAR, POUND, BOE

• US Dollar may rise as Fed’s Powell remains confident on rate hike prospects
• British Pound may see volatility as Carney, BOE officials testify on FSR report
• New Zealand Dollar surges after RBNZ core inflation gauge hits 7-year high

All eyes are on Federal Reserve Chair Jerome Powell Tuesday as he makes a semi-annual appearance to field questions from the Senate Banking Committee. Besides the usual conversation about unemployment and inflation, lawmakers will almost certainly grill the central bank chief on the likely impact of escalating trade war tensions.

Fed officials have recently sounded somewhat worried about how prolonged friction between the US and its top trading partners might impact meeting their objectives. Mr. Powell has been cautiously optimistic however, suggesting that the bar to dialing back the central bank’s rate hike ambitions remains high. More of the same might prove supportive for the US Dollar.

A relatively quiet economic calendar in European trading hours is headlined by testimony from Bank of England policymakers including Governor Mark Carney on the latest Financial Stability Report (FSR) before Parliament’s Treasury Committee. UK lending conditions have cautiously improved in recent months but worries about adverse effects of Brexit-related uncertainty may inspire British Pound volatility.

The New Zealand Dollar surged after the RBNZ data showed that its preferred measure of core inflation – the so-called “sectoral factor model” gauge – put trend price growth at 1.7 percent on-year in the second quarter. That is the highest in seven years. The currency rose alongside local bond yields, hinting the release was interpreted as boosting rate hike prospects. Still, no changes are priced in for this year.

The Yen underperformed as Japanese stocks advanced, weighing on the frequently anti-risk currency. Consumer-discretionary and healthcare names led the way higher in a move that diverged from an otherwise downbeat mood across Asia Pacific bourses. The move follows Monday’s holiday closure and so might reflect catch-up flows rather than something with follow-through potential.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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