Market Drivers for August 20, 2013
RBA minutes – rate cut possible not imminent
NZD Wheeler – NZD overvalued
Nikkei -2.63% Europe -1.38%
Oil $106/bbl
Gold $1358/oz.

Europe and Asia:
AUD RBA Policy Meeting – August Minutes
NZD RBNZ 2-Yr Inflation Expectations
JPY All Industry Activity Index -0.6% vs. -0.6%

North America:

The dollar continued to drift lower against the European currencies and the yen but Southern hemisphere antipodeans were markedly lower in Asian and early European trade as currency markets remained in a quiet summer doldrum lull.

Both Aussie and kiwi came under heavy selling pressure during Asian session trade with AUD/USD dropping towards the .9000 level while NZD/USD broke below the key 8000 figure. In Australia the release of the RBA minutes reaffirmed the view that inflation pressures remained tame while growth was below trend. RBA officials noted that another rate cut was possible but not imminent, and that news actually helped to steady the unit in the immediate aftermath of the release.

However the H2 results from BHP Billiton showed a dramatic fall in profits to 6.12B USD versus 7.18B the year prior sending the Aussie plunging once again, as investors feared that the collapse of the mining boom will put further downward pressure on the Australian economy.

In New Zealand Governor Wheeler issued several decrees to clamp down on lending to the housing market but refused to consider the prospect of a rate hike. Instead the RBNZ will limit low deposit loans to only 10% of new mortgages which should contain the housing market without adding any buying pressure to the kiwi. The unit was also hurt by news of another milk contamination scandal as shipment tainted with Nitrates has been exported to China.

In Europe however, the greenback was weak across the board as stops triggered at the 9200 USD/CHF level pushed the other European currencies higher with EUR/USD once again inching towards the key 1.3400 level while cable hovered near 1.5700. Despite the recent rise in rates the dollar has not been able to find any buyers which bodes badly for the unit and suggests that investors are uneasy not only about the lack of clarity at the Fed but also the uncertainty regarding US growth.

With no data on the calendar today, the FX markets may continue to tread water. But with both EUR/USD and GBP/USD so close to key technical breakout levels the temptation to run stops may be too hard to pass up especially in relatively thin summer holiday markets. Therefore both euro and cable could climb higher as the day proceeds.

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