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NZD/USD appreciated most overnight by 0.8% to 0.6252, its highest closing level since January 2. NZD/USD can return to the 0.6320 level at the end of 2023 to fully recover this year’s losses. Technically, NZD/USD has broken above this year’s primary psychological resistance level at 0.62. Policy-wise, the focus shifted to the greenback’s weakness in anticipation of the Fed’s telegraphed rate cut at the September 18 meeting, following the Reserve Bank of New Zealand’s interest rate cut on August 14. Position-wise, CFTC data reported that speculators have trimmed their net short positions after aggressively dumping their six-year high net long positions during the unwinding of JPY carry trades in the past two months.
The DXY Index depreciated 0.3% to 100.55, its weakest level since July 2023. While the US Treasury 10Y yield was barely changed at 3.82%, the 2Y yield eased 3.7 bps to 3.90%. Both the S&P 500 and Nasdaq Composite Indices rose by 0.16% each. Fed officials are rallying around Fed Chair Jerome Powell’s call to lower interest rates in September. This Friday’s PCE deflator has become less relevant given the Fed’s priority to prevent further cooling of the US labour market. Although the Conference Board’s Consumer Confidence Index increased to 103.3 in August from an upwardly revised 101.9 in July, consumers showed more concern about the labour market. For example, the proportion of respondents who felt that jobs were “plentiful” fell to 32.8% from 33.4%, while the share of those who reckoned jobs were “hard to get” increased slightly to 16.4% from 16.3%. However, the expectations index signalled less concerns of a recession ahead by pushing above 80 to 82.5 in August from an upwardly revised July to 81.1. Overall, the consumer survey supported the Fed’s inclination for a 25 bps rate cut vs. the market’s bet for a larger 50 bps move.
Quote of the day
”Faith is taking the first step even when you don’t see the whole staircase.”
Martin Luther King Jr.
28 August in history
Martin Luther King Jr. delivered his historic “I Have a Dream” speech at the Lincoln Memorial in 1963.
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