Kiwi Dollar Slumps as RBNZ Surprises with Rate Cut

The Reserve Bank of New Zealand unexpectedly cut interest rates by 25 basis points to 5.25%, causing the kiwi dollar to drop 1%. US stocks reached a near two-week high after softer producer price data bolstered expectations for a Federal Reserve rate cut in September. European futures pointed to a higher open, with UK and Eurozone inflation data in focus.

Equities

The FTSE 100 edged up by 0.3% on Tuesday, marking its third consecutive session of gains, driven by strong performances in the insurance, pharmaceutical, and biotech sectors. Just Group led the charge among insurers, with its shares soaring 14.5% after it exceeded its 2024 profit forecast.

Pharma and biotech stocks added 1.1% to the benchmark index's rise. However, the automobile and parts sector lagged, with Dowlais Group dropping 4.4% after announcing it was considering selling its GKN Powder Metallurgy unit and lowering its annual revenue forecast. Crest Nicholson was the biggest loser on the FTSE 250, plummeting 20.7% after Bellway cancelled its £720 million takeover proposal.

Across the Atlantic, US indices closed higher, with the S&P 500 and Nasdaq Composite both reaching near two-week highs. The S&P 500 rose by 1.68%, led by gains in the information technology and consumer discretionary sectors, while the Nasdaq jumped 2.43%. The Dow Jones Industrial Average also climbed by 1.04%.

Starbucks topped the S&P 500's performance with a 24.5% surge following the appointment of Chipotle Mexican Grill's head, Brian Niccol, as its new CEO. In contrast, Chipotle’s shares fell by 7.5%. Home Depot reversed earlier losses to finish 1.2% higher despite forecasting a drop in annual profit and comparable sales. BuzzFeed saw a significant 25.9% increase after reporting a narrower second-quarter net loss compared to the previous year.

Forex & Commodities

The US dollar weakened against the yen and a basket of its peers on Tuesday as markets reacted to US inflation data. The dollar fell by 0.35% to 146.71 yen, reflecting a calmer trading environment after recent turbulence driven by the unwinding of the carry trade and a surprise rate hike by the Bank of Japan. The dollar index also declined by 0.5% to 102.56, while the euro strengthened, rising 0.61% to $1.0999.

In the UK, sterling rose by 0.81% to $1.2869, buoyed by data showing a drop in the jobless rate to 4.2% in June, contrary to expectations of a slight increase. Although job vacancies and wage growth slowed, the figures supported the pound, which has been under pressure recently.

Gold prices edged lower, with spot gold slipping 0.2% to $2,460.89 per ounce, as investors awaited the US consumer price index report due later in the day. The report is expected to provide further insight into the Federal Reserve’s rate policy. US gold futures also dipped by 0.3% to $2,500.10.

Oil prices tumbled as fears of a wider Middle East conflict eased. Brent crude fell by 1.96% to $80.69 a barrel, while US West Texas Intermediate crude dropped by 2.14% to $78.35 a barrel.