Little Happening With the Commodities Currencies

AUD Update

Australian construction work up, new home sales down.

Australian ecostats were even fewer and farther between. Construction work in the second quarter of the year was up by 3.5% compared with Q1 and that first quarter figure was itself revised upwards from 1.9% to 4.2%. Analysts had been suspicious about the originally low Q1 number when it came out; the revision put it more in line with where it ought to have been.

On the other side of the construction coin, new home sales fell by -7% between June and July. It was the third successive monthly decline and sales were down by 2% compared with the same month last year. The steepest fall was Victoria’s -12.9% while sales went up by 4% in South Australia. The Housing Industry Association’s chief economist blamed the decline on ‘regulation, development charging, and excessive taxation on the cost of new housing supply’ and said the government should do something about it.

NZD Update

Lower inflation expectations reduce the chance of higher NZ interest rates in September.

The New Zealand economic data and news did little to help the NZ dollar or the spread trading markets. Nothing, actually. First up was the Reserve Bank of New Zealand’s survey of inflation expectations. Like almost every other central bank, the RBNZ takes note of how the population anticipates inflation working out.

If people think it will fall or remain low (whatever ‘low’ means), shopkeepers will keep prices steady and employees will be content to receive modest pay rises. If people expect inflation to go higher they will look for higher compensation. RBNZ Governor Alan Bollard touched on the subject in a recent speech. Last week’s figure showed expectations of where inflation will be in two years’ time falling from 2.8% to 2.6%.

The question, then, is what this will mean for monetary policy – if anything. The RBNZ knows, or at least strongly suspects, that inflation will be much higher than that – perhaps 5% – next year as a result of tax changes. Raising interest rates will do nothing to counteract higher taxes. For this reason, analysts and financial markets have toned down their forecasts for NZ rates. If you are day trading, take note…

They put odds of 4/1 against a rate hike at the September policy meeting and are factoring in a total of just 50 basis points – half a percentage point – of rate increases over the next 12 months.

Weekly update by www.moneycorp.com, Foreign Exchange since 1979.