Signs of the currency markets struggling to find direction are continuing today with this most likely because there is still mixed investor sentiment towards the Dollar. There were some signs of investor appetite towards the USD returning after retail sales increased in line with expectations at 1.2% but this is coming on the back of considerable declines in recent months and for me, we are still not seeing any signs of consumers spending in the US economy. This will not prevent the Federal Reserve from raising interest rates once, but allows them to remain as hesitant and cautious as they deem necessary when it comes to the pace of future rate increases.
The EURUSD has continued to pullback with the pair having now declined as low as 1.1226 following another rejection of 1.14 yesterday. All attention remains on Greece, which I personally see as a constant threat to investor sentiment and I do think the Euro currency is vulnerable to further pressures if concerns intensify that Greece is at risk to defaulting at the end of the month. While there is renewed optimism that talks between Greece and its creditors are finally making progress, meetings have now been continuous for months and largely failed to achieve anything in terms of results. Reports are emerging that Germany’s stance is softening towards Greece although this could just be an attempt to allow negotiations to continue for longer and more importantly, avoid a possible Greece default.
The NZDUSD crashed to a near five-year low at 0.6996 after the Reserve Bank of New Zealand (RBNZ) surprised the markets with an interest rate cut earlier this morning. While there was talk about a possible interest rate cut, no one really expected quite yet and this inspired a 200 pip decline in the Kiwi. The RBNZ only raised interest rates during three consecutive meetings one year ago and I think that the move from the RBNZ can be used as an example exactly why the Federal Reserve needs to be cautious when it comes to raising US interest rates. Changing market conditions have created downside economic pressures on the New Zealand economy with this being why the RBNZ have had to cut rates. However, the Federal Reserve will never have the same flexibility to shift policy with the havoc this would create on the global markets and this is largely why the pace of US interest rate rises will be very slow.
After managing to advance to a monthly high at $61.81 following another reduced trade surplus from the United States, WTI Oil has slipped to $60.45. While US inventories are consistently dipping lower, it is clear that investment in oil production is increasing throughout the Middle East and OPEC are trying to regain market share by squeezing away US producers. Today’s International Energy Agency (IEA) report expressed that although demand for the commodity is increasing, OPEC supply is at its highest level since August 2012. This for me means that the oversupply concerns will continue to remain as a dominant threat to investor sentiment and will inspire the price of WTI to remain low.
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