By Dan Bell
So much for the European debt crisis and risk aversion earlier this week - the NZD/USD made a new post float high overnight and opens this morning around 0.8350 to be over 3% off recent lows.
The key driver overnight was news the U.S. Federal Reserve is ready to ease monetary policy further if economic growth and inflation slow much more.
"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," Chairman of the Fed Ben Bernanke told the U.S. House of Representatives Financial Services Committee.
Asked whether the Fed would be willing to launch another bond purchase program if the economy slumps, Bernanke said: "We have to keep all the options on the table. We don't know where the economy is going to go."
The market was surprised to hear the Fed was open to QE3 which has given risk assets a boost across the board. The USD had its worst day in over a month, equities are stronger and most commodities are up over 1%.
The EUR/USD has recovered from recent lows around 1.38 to make a high of 1.4192 overnight. While the AUD has bounced of recent lows around 1.0530 to make a high of 1.0778 overnight.
Better than expected data from China added to the lift in market sentiment with 2nd Quarter GDP coming in at an annual rate of 9.5% compared to a consensus of 9.4%.
The NZD opens on a firmer note against most of the major cross rates - indicative interbank mid rates as follows: 0.5900 EUR, 0.7770 AUD, 66.00 JPY and 0.5195 GBP.
Today the focus will be on NZ Q1 GDP which is finally released after two false starts due to the Christchurch earthquake. We also get NZ Business Manufacturing Index this morning at 10:30.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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