The Reserve Bank of New Zealand cut its official cash rate by 0.25% to 2.75% as expected. This is the third cut this year and in the statement, the Governor Graeme Wheeler hinted at further cuts in order to keep inflation near the 2% target midpoint. He also said that further depreciation of the New Zealand dollar is needed to support exports, which have been hit badly by plummeting commodity prices. The kiwi fell after the announcement, erasing the gains from the past two days to fall to 0.6273 against the US dollar in late Asian session.
In China, August inflation came in above estimates at 2% year-on-year, versus forecasts of 1.8% and up from 1.6% in the previous month. Higher food prices were the main factor for pushing up annual CPI. But underlying weakness in inflationary pressures remained evident as producer prices slipped further into deflation. PPI fell to -5.9% in August from -5.4%, the lowest level since 2009. The People’s Bank of China set a new lower midpoint for the yuan today at 6.3772 per dollar and a less active intervention by the PBOC saw the yuan depreciating to around 6.3850 per dollar.
The yen was weaker in Thursday’s Asian session on poor capital spending data. Core machinery orders fell by 3.6% m/m in July, adding to the 7.9% drop in June. Expectations were for machinery orders to rise by 3.4%. The dollar was back above 120 yen in late Asian session, after briefly falling to 119.97 in early trading. The euro also rose against the yen and made a brief spike to 135.87 before easing to 135.28.
Australian unemployment figures were slightly better than expected in August as employment rose by 17,400 versus estimates of 5,000. The unemployment rate fell to 6.2% in August from 6.3% previously. The positive data supported the aussie, which recovered to 0.7029 after hitting a low of 0.6945 following the RBNZ rate cut.
The euro weakened slightly on poor French industrial production data. Industrial production fell by 0.8% m/m in July, versus forecasts of a 0.2% rise. The single currency was trading at 1.1209 against the dollar in late Asian session, having peaked at an 8-day high of 1.1244 dollars earlier in the session. Against the pound, the euro was at 0.7297.
The pound edged lower on Thursday as it awaits the Bank of England’s monetary policy decision. No change in policy is expected but investors will be looking closely at the Bank’s minutes to see if the recent events in China and global equity markets have changed the MPC’s outlook on UK inflation expectations. Cable was trading at 1.5351 in late Asian session. Stronger-than-expected house price data from Halifax had little impact on the pound.
After a busy start to the day, the Bank of England’s meeting minutes is set to attract a lot of interest when published at 11:00 GMT. In the US, the weekly initial jobless claims will be the main data to watch out for, while the latest crude oil inventories numbers may put some pressure on crude oil prices if they rise by more than expected.