RBNZ upsets the applecart…

* Most currencies remain in range
* JOLTS rises to record
* Bank of Canada on hold
* New Zealand cuts rates

And now. Today’s A Pfennig For Your Thoughts.

Good day. And welcome to Thursday morning. The equity market momentum of yesterday morning fizzled out once US traders were open for business, but the currency market was able to hold steady throughout most of the day. I don’t have anything from Frank today, so it’s not going take long for you to get through the Pfennig this morning.

As I mentioned yesterday, data here in the US has been sparse this week. Yesterday, we saw results of the July Job Openings and Labor Turnover Survey (JOLTS) rise to an annually adjusted figure of just under 5.8 million and represented the highest reading since the report first began in December 2000. At the same time, the hiring component fell a bit from June as some employers indicated they were having a challenge trying to find what they would consider to be qualified candidates. Since this report indicates there could be a supply and demand issue, some economists are interpreting this as a signal to possible wage inflation on the horizon.

Janet Yellen indicated that the JOLTS report was of interest, so the potential for higher wages gave some traders a warm and fuzzy as to a Fed rate hike next week. We’ll have a bit more data to review today as we get the weekly jobs numbers, the August import price index, and the July wholesale inventory numbers but we aren’t supposed to see any surprises according to the expert forecasts. As will be the case until the actual rate decision has been made, traders will be trying to read into every bit of data and attempt to assign support for action or cause for a pause.

As far as currencies are concerned, we didn’t see much of a shake up as the day progressed. The New Zealand dollar and Brazilian real finished in the top two spots respectively while the euro, Canadian dollar, and pound finished with marginal losses. The Japanese yen remained in last place after speculation has been on the rise as to whether we see additional stimulus measures from the Bank of Japan and the general risk off theme continues to push the currency lower. The Bank of Canada met yesterday and decided to keep rates on hold while saying growth remains on pace as a weak currency and higher consumer spending are working to offset lower oil prices.

We didn’t really have any new developments stem from this meeting, but if anything, it looks as though the central bank is content with the current environment and doesn’t appear eager to cut rates again unless there is a significant deterioration. They went on to say that taking all things into consideration, the Bank judges that the risks to the outlook for inflation remain within the zone for which the current stance of monetary policy is appropriate. In other words, rates are going to stay put unless oil goes into a free fall or the economy falls into a tailspin. Other than that, we had manufacturing and exports unexpectedly fall in the UK so that put a damper on the rate hike prospects. Like we’re dealing with here in the US, we see the constant tug of war between the two rate camps.

As I came in this morning, the dollar index is pretty flat but the New Zealand dollar is taking on some serious water and was sitting on a 1.5% loss. The Reserve Bank of New Zealand (RBNZ) decided to press on with a 0.25% rate cut so that takes the benchmark down to 2.75% from 3%. The part that threw currency traders into a frenzy was the indication that future rate cuts are on the table. The rate decision was expected and already baked in for the most part, but the dovish stance accompanying rhetoric wasn’t necessarily anticipated. The RBNZ said that at this stage, some further easing in the OCR seems likely and will depend on the emerging flow of economic data. Policy makers anticipate lower economic growth and inflation figures, so not exactly a recipe to prevent interest rates from falling further. Some economists are calling for rates to bottom out at 2%, but the big question is where will the currency find some support.

Currencies today 9/10/15. American Style: A$ .7066, kiwi .6297, C$ .7548, euro 1.1190, sterling 1.5393, Swiss $1.0240, . European Style: rand 13.8515, krone 8.2006, SEK 8.4031, forint 280.95, zloty 3.7647, koruna 24.142, RUB 66.4436, yen 121.01, sing 1.4158, HKD 7.7496, INR 66.4436, China 6.3772, pesos 16.9120, BRL 3.8843, Dollar Index 96.095, Oil $44.24, 10-year 2.21%, Silver $14.67, Platinum $988.00, Palladium $585.25, and Gold. $1,107.50

Mike Meyer
Vice President
EverBank World Markets