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NZD/USD Posts Solid Gain on Back of China Rebound, Higher Consumer Inflation Numbers

Consumer prices in New Zealand were up 0.9 percent on quarter in the third quarter of 2018, Statistics New Zealand said on Tuesday. That exceeded expectations for an increase of 0.7 percent and was up from 0.4 percent in the three months prior.

The Australian and New Zealand Dollars surprisingly posted strong gains last week with help coming from a rebound in China’s currency and equity markets.

Chinese Yuan

China was in the news all week with most of the focus on Chinese stocks which have slumped close to 10 percent so far this month. Foreign investors and domestic institutions dumped shares amid concerns about rising U.S. Treasury yields and risks to the world’s second largest economy, and as worries rose over the prospect of forced margin calls.

On Friday, China reported that gross domestic product grew 6.5 percent year-on-year in the third quarter, below expectations and the weakest quarterly pace since the first quarter of 2009.

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China’s Yuan edged up against the U.S. Dollar on Friday, but was still set for a weekly loss. The People’s Bank of China set the mid-point at 6.9387 per dollar, 0.16 percent weaker than the previous day’s fix and the lowest level since January 4, 2017.

China’s stock and currency markets posted a rapid turnaround on Friday after the PBOC moved to instill investor confidence. The governor of the PBOC said that China’s current equity valuations were not in line with sound economic fundamentals, and that the bank would enact targeted measures to help ease firms’ financing problems and encourage commercial banks to boost lending to private firms.

Also helping to boost the Yuan was Shiyu, chairman of the China Securities Regulatory Commission (CSRC), also said the regulator will support the issuance of high-yield bonds and other debt products by small and medium-sized companies.

Australian Dollar

The Australian Dollar rallied late to finish higher for the week after being pressured most of the week by the hawkish Fed minutes and mixed domestic data.

The AUD/USD settled at .7120, up 0.0004 or +0.06%.

The Fed minutes said the central bank would stay the course and continue to raise rates gradually. This helped make the U.S. Dollar a more attractive investment.

This was followed by a mixed employment report that showed Australia’s unemployment rate falling faster than anticipated, dropping sharply to 5% last month. The larger than expected decline in unemployment means the labor market is now meeting the Reserve Bank’s definition of “full employment”.

In seasonally adjusted terms, the number of employed persons increased by 5,600 last month, which was much weaker than the 45,000 new jobs in August.

The Aussie turned around on Friday to close higher for the week after the Yuan and the Chinese stock market reversed to the upside.

New Zealand Dollar

Consumer prices in New Zealand were up 0.9 percent on quarter in the third quarter of 2018, Statistics New Zealand said on Tuesday. That exceeded expectations for an increase of 0.7 percent and was up from 0.4 percent in the three months prior.

The New Zealand Dollar climbed on the news, but fell back to earth after the release of the hawkish Fed minutes. The Kiwi was able to post a huge rally on Friday on the back of a turnaround in China.

For the week, the NZD/USD settled at .6591, up 0.0083 or +1.28%.

This article was originally posted on FX Empire

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