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On August 13th, UOB analyst Alvin Liew outlined the banks expectations for the federal funds rate following the release of the July US CPI data. Market pricing in a September rate hike has decreased, and UOBs base case scenario is an extended pause throughout 2026. The bank anticipates two 25-basis-point rate cuts in 2027, gradually lowering the federal funds rate to approximately 3.25% by the end of 2027: "We maintain our base case scenario, where the Fed maintains its pause for the remainder of 2026 and then resumes its easing cycle in 2027, likely with two 25-basis-point cuts at the end of the second and fourth quarters of 2027. Under this scenario, the federal funds target rate is expected to remain unchanged until the end of 2026, then gradually decline to 3.25% by the end of 2027, which remains our estimate for the final federal funds rate. While the risks to our FOMC outlook have become more balanced following the June and July CPI reports, they remain slightly skewed to the upside due to geopolitical and energy-related uncertainties, and we remain vigilant about the significant risks of policy tightening."On August 13th, Elias Haddad, an analyst at Brown Brothers Harriman, pointed out that the New Zealand dollar briefly dipped below its 200-day moving average today due to mixed results from the Reserve Bank of New Zealands third-quarter inflation expectations survey, but the overall anchor remained strong, close to the 2% midpoint target. Given that inflation remains above target, domestic growth is stronger, and the policy rate is near the lower end of the neutral range, Haddad believes there is reason to further raise interest rates, and the swap market has fully priced in a 75 basis point tightening, which is positive for the New Zealand dollar.The number of initial jobless claims in the United States for the week ending August 8, as well as the July PPI monthly and annual rates, will be released in ten minutes.August 13 - According to the Islamic Republic News Agency (IRNA), a spokesperson for the Iranian Joint Military Command stated, "No vessel can safely pass through the Strait of Hormuz without permission. Any vessel must obtain permission from Iran to pass through the Strait of Hormuz. Iran has complete control over the Strait of Hormuz. The Iranian military monitors US movements in the region, and Trumps claims about controlling the strait are lies."On August 13th, the 5th China RISC-V Industry Forum was held in the Lingang New Area to promote the in-depth development of domestically produced RISC-V chips. The forum aimed to accelerate the industrialization and application innovation of domestically produced RISC-V chips. Of the more than 40 products showcased at the forum, the overall mass production rate has exceeded 90%, and these chips are widely used in consumer electronics, smart homes, wearable devices, communications, automobiles, industrial control, and other fields. This mass production achievement fully demonstrates that domestically produced RISC-V chips are accelerating their transition from technological innovation to large-scale application and have already been implemented in multiple industries and application areas.

NZD/USD finds support near 0.6220; a decline appears more probable due to China's Covid concerns

Alina Haynes

Nov 28, 2022 15:04

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China's anti-Covid shutdown protests have weakened commodity-linked currencies, resulting in a gap-down start of roughly 0.6220 for the NZD/USD pair. During the previous week, the New Zealand dollar dropped after failing to surpass the round-level barrier of 0.6300.

 

Individuals have taken to the streets in China to demonstrate their opposition against the zero-tolerance policy, leading to a rise in civil unrest. Due to Chinese leader Xi Jinping's conservative posture and authoritarian framework, global markets have become more risk-averse. This has created an economic expansion risk and may worsen the already shaky housing market. Increasing apprehensions about societal risks may also result in political instability, which may have long-lasting detrimental effects on economic structure.

 

Notably, New Zealand is one of China's most important trading partners, and instability in China could damage the New Zealand Dollar.

 

In the meantime, the US Dollar Index (DXY) is profiting from investors' liquidity as the demand for safe-haven assets surges. The USD Index is hovering around 106.20 and attempting to reduce volatility as China's anti-locking protests restrict the upside and predictions of a slowdown in the Federal Reserve's larger rate hike cycle limit the downside (Fed).

 

S&P500 futures are under heavy pressure from market players due to a risk-averse market mentality. In anticipation of Fed chief Jerome Powell's address on Wednesday, yields on 10-year US Treasuries have decreased to approximately 3.68 percent. The Fed Chair's speech could dispel suspicions about a pause to the Fed's current rate-hiking program.