Forex Today: Kiwi bulls emboldened in Asia, markets eye Powell testimony

Forex today saw NZD going ballistic on the back of upbeat RBNZ’s core inflation number and greenback’s exchange rate, as represented by the dollar index (DXY), deflate to 200-hour moving average support. 

Kiwi had a rough start as Stats New Zealand reported a softer-than-expected second quarter consumer price index (CPI), triggering speculation that RBNZ will be forced to keep rates on hold for a prolonged period of time. 

However, the drop to 0.6750 was quickly undone and the pair rose back to 0.6775, from where it picked up a strong bid and rose to 0.6840, confirming an inverse head-and-shoulders breakout on the way higher. The solid gains are being associated with RBNZ’s preferred measure of core inflation hitting 7-year highs in Q2. Clearly, the NZD is on the offensive and could extend gains further if Fed’s Powell sounds dovish during his testimony to congress. 

Amid Kiwi’s solid run, the dollar index (DXY) neared the 200-hour MA support of 94.42, having breached the rising channel to the downside on Monday. Meanwhile, the USD/JPY witnessed an upside break of the descending channel on the hourly chart, but struggled to scale the 50-hour moving average hurdle. 

Further, strong demand for gold put options (bearish bets) pushed the risk reversals to 6.5-month low of -0.55 in Asia. 

Major News in Asia

• RBA Meeting Minutes: next rate move likely up if economy hits expectations
• RBNZ's preferred gauge of inflation hit 7-year high in Q2, 2018
• China State Planner: China has ample policy room to deal with shocks
• BoE's Haldane sees pay pressure on the rise - Bloomberg Quint
• US lawmakers slam Trump as POTUS backs Russia on US election meddling - Reuters
• New Zealand CPI misses expectations, q/q clocks in at just 0.4%

All Eyes on Powell Testimony and UK labor data

Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee on Tuesday, followed by testimony on Wednesday to the House of Representatives Financial Services Committee, according to Reuters.

The Fed is expected to reiterate Fed’s gradual monetary policy tightening, although any suggestion of rising inflation being a serious concern would mean faster rate hikes and a higher neutral rate and hence could yield a broad based rally in the USD. 

On the other hand, caution on trade could hurt risk assets and the greenback. 

Also, in Europe, GBP pairs could turn volatile after the release of the monthly UK wage growth numbers. Average Earnings including bonuses is expected to grow by 2.5% for the first quarter of 2018, while Average Earnings without bonuses is expected to lift by 2.7%. At the same time, Unemployment readings are expected to remain steady at 4.2%. Just ahead of the data release is BOE governor Mark Carney’s speech. 

What’s brewing in majors?

• EUR/USD holding close to 1.17 ahead of US Fed Powell testimony
• GBP/USD still stuck near 1.3250 ahead of Average Earnings call, BoE's Carney speech
• USD/JPY Forecast: Eyes re-test of 112.80, focus on Powell testimony
• NZD/USD sees inverse head-and-shoulders breakout on RBNZ's strong core inflation number