NZD Bollard hawkish kiwi rallies - GBP RICS and Retail boost pound - EUR Labor costs edge higher - USD Retail Sales on tap
As the majors continued their listless trade tonight, the true action in the currency market was centered on the New Zealand dollar which soared above the 6600 level despite RBNZ leaving rates unchanged. The catalyst for the 150 point move was RBNZ's notoriously hawkish Governor, Allan Bollard who stated that he was "less confident that no further policy tightening will be required". Mr. Bollard's comments opened the door to future rate hikes and triggered a massive rally in the single currency. However, given the recent slowdown in global growth which may keep NZD rates at bay and the country's massive record trade deficit, it remains to be seen whether the kiwi can hold these lofty levels once the speculative interest wears off.
While traders chased yield in the kiwi, the rest of the currency pairs remained moribund throughout Asia and early Europe. Both the euro and the yen traded in tight 30 point ranges with economic news having little impact on order flow. In Japan the BOJ came under attack from certain LDP legislators who accused the monetary officials of a rush to judgment in moving away from the Zero Interest Rate Policy ahead of the downward revision in the CPI index. The news weighed on the yen as it suggested that idea of additional rate hikes in the near future would be met with stiff opposition, as the country's fiscal policymakers still harbored a strong institutional bias towards a loose monetary policy.
Meanwhile in Europe Labor Costs rose faster than anticipated gaining 2.4% rather than the 2.3% market forecast The news served to buttress ECB's argument of inflationary pressures and helped underpin the EUR/USD near the 1.2700 level. Most of the European price action however, was saved for the pound which cleared the 1.8800 figure on the back of stronger than expected Retail Sales numbers and good recovery in the RICS survey which reached a two year high of 35%. With UK consumer sector remaining vibrant, housing demand strong and unemployment rolls decreasing, the chance of yet another 25bp rate hike from BOE by November, has increased markedly and speculators plowed into the currency anticipating the move.