By Kymberly Martin
NZD
The NZD/USD started on a downward journey yesterday morning following the HLFS. It maintained its downtrend overnight, to sit 1.0% lower this morning, at 0.8310.
The Q4 Household Labour Force Survey (HLFS) showed the headline unemployment rate stepping down to 6.9% from 7.3% previously. However, this was largely due to a decrease in the labour force participation rate.
Employment declined 1.0% in the quarter. We maintain significant reservations about this highly noisy data series.
Still, the market has responded to the message of labour market caution given by the survey, inching down RBNZ rate hike expectations. The NZD slipped lower.
Weakness was reinforced overnight, in slightly more cautious markets, following the much-anticipated ECB meeting (see Majors). The NZD/USD remains within its trading range of the past month, or so, but sits not far from key support of 0.8280.
The NZD dropped sharply relative to a stronger GBP overnight (see Majors). Having touched 0.5400 earlier this week the NZD/GBP sits at 0.5290 this morning.
The NZD/AUD was knocked lower following the HLFS release. Weakness was then exacerbated with the release of AU employment data that was slightly firmer than expected.
In contrast to expectations for deterioration, the AU labour market added 10.4K of jobs and the unemployment rate remained at 5.4%.
The NZD/AUD has drifted lower to sit around 0.8080 currently.
There are no domestic data scheduled for release today. Expect the NZD to take its cue from broader risk sentiment.
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Majors
The NZD followed the EUR lower overnight. The USD was broadly stronger though the JPY and GBP outperformed.
Overall risk sentiment was a little softer overnight, following the ECB meeting. Our risk appetite index (scale 0-100%) slipped back to 78%, and The Euro Stoxx50 closed down 0.7%. The S&P500 is currently down by a similar amount.
The ECB left rates unchanged at 0.75% as expected. At the press conference President Draghi acknowledged the Eurozone’s continued fragility. He added that its modest recovery would take hold only in the latter part of the year.
He softened his tone on the currency slightly. He acknowledged a stronger exchange rate might alter the inflation outlook. Still, he reiterated the exchange rate is not an ECB target and the Bank had no intention of directly manipulating the currency.
Still, the EUR slipped from above 1.3550 to sit around 1.3400 this morning.
The USD was the key beneficiary. The USD index rose from below 79.60 to sit above 80.20 this morning.
The JPY also appeared to step up to its role of a ‘safe haven’ currency. The USD/JPY weakened from 93.90 to sit around 93.40 currently. Still, the move is a mere blip on the solid weakening trend of the JPY.
The BoE also left rates unchanged. Incoming Governor Carney spoke at length, playing a straight bat on his currency views; “an absence of a target for the exchange rate does not mean a central bank should be indifferent to exchange rate movements”.
Earlier the GBP spiked higher after one of his comments appeared to be taken out of context. Stating the obvious, that ultimately “the BoE must exit unconventional policy”, the market appears to have assigned greater imminence.
The GBP/USD shot from 1.5660 to above 1.5760, before settling around 1.5700 early this morning.
Australia’s employment data yesterday proved a bit of an anti-climax. The unemployment rate held at 5.4%, eliciting little lasting response from the currency.
Overnight however, the AUD drifted a little lower in the dampened mood for ‘risk’. The AUD/USD sits around 1.0280 currently, its lowest level since late October.
Today, the RBA issues its quarterly statement. China also issues an array of data including trade balance and CPI, which has potential to elicit a response from the AUD. Tonight, Germany and the US also release their trade balance.
Other News:
US Q4 nonfarm productivity (-2.0% vs. -1.4% expected); Q4 unit labour costs (4.5% vs. 3.0% expected)
Event Calendar:
8 February: AU RBA policy statement; CH trade balance.
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