Kiwi rebound falters as USD outperforms

Key Movers

The US dollar outperformed through trade on Thursday despite a mixed macro data set and a raft of commentary from key Fed officials. Home sales fell almost 6% in July, the 6th consecutive monthly decline. The downward correction underpins a downturn across the housing market as activity across the sector plunges in the face of rising interest rates and increasing cost of living pressures. The Philadelphia manufacturing index shows a surprise uptick, moving against earlier downturns in other state indexes and offering some suggestion the pace of economic correction may not be as rapid as first feared. Fed officials were out in droves, affirming the Fed’s commitment to controlling inflation. Members Bullard and George confirmed the case for raising rates remains strong and expect the underlying fed funds rate to approach 4% by year-end. Markets looked to price in a 75 basis point adjustment in September yet comments from Minneapolis Fed president Neel Kashkari tempered optimism where in it was suggested, while the FOMC needs to urgently control inflation it is unlikely it will be able to do so while avoiding recession.

In other news, British pound and the euro underperformed, tumbling 1% on the day as Europe’s energy crisis continues to bite. The euro slipped below US$1.01 while the GBP fell below US$1.20 to mark lows at US$1.1935 as European gas futures rose 7% to record highs at 241 euros per megawatt hour. In a bid to control rising energy costs, Germany has slashed the Value Added Tax on household gas sales. While easing some of the pressure on consumers’ cost of living, it is likely to do little in the way of easing demand pressures as Europe moves toward the colder months.

With little of note on today’s macro ticket, our attention remains on the price action across global bond rates and the broader risk narrative.