Market Drivers July 19, 2016

RBA Minutes suggest dovish bias
UK CPI hotter
Nikkei 1.31% Dax -1.16%
Oil $45/bbl
Gold $1333/oz.

Europe and Asia:
AUD RBA Minutes suggest possible cut
GBP UK CPI 0.5% vs. 0.3%
EUR GE ZEW -6.8 vs. 9.0

North America:
USD Building Permits/Housing Starts 8:30

Both the Aussie and the kiwi were markedly lower in Asian and early European dealing today after policy makers from both countries hinted that more easing may be coming in the near future.

In New Zealand the RBNZ exercised its macro prudential tools tightening lending standards across the board by limiting the Loan to Value Restrictions to 60% from the current guideline of 70%. The new rules would force greater equity from borrowers therefore limiting their ability to drive real estate prices.

However, the true impact of these moves suggests that the RBNZ may be preparing the market for a possible rate cut in its August meeting. This week the New Zealand policy makers are set to provide an assessment of economic conditions and many market participant anticipate that it will hint at more easing in August.

The situation was similar across the Tasman sea where the RBA minutes proved to be considerably more dovish than the market expected. The Australian monetary authorities noted that they were watching data on inflation, employment and housing to refine outlook for economy and to “make any adjustment to the stance of policy that may be appropriate” depending on data.

The tone of the minutes suggested that the August meeting would be “live” with RBA policy makers seriously considering a rate cut, especially if inflation data which is due on July 27 proves to be dovish.

The one two punch from RBNZ and RBA knocked both Aussie and kiwi for a loop dragging the former below the .7500 barrier while sending the later to within a few pips of the key .7000 support level. Both Aussie and kiwi have enjoyed relative strength since Brexit as their high yields attracted investors desperate for a return. However, if both central banks decide to ease the antipodeans will lose much of their luster and could unwind much of their rally over the next few weeks.

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