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Any weakness in UK employment data or dovish tone from Bank of England could launch the NZD/GBP higher

Posted in Currencies

By Kymberly Martin

NZD

The NZD/USD traded a choppy path over the past 24-hours, but sits higher this morning at 0.8480.

In the absence of domestic data releases yesterday, the NZD bobbed around below the 0.8450 level. Overnight however, as broad market sentiment was strong, (see Majors) the NZD was a key beneficiary.

Overnight, the global dairy trade auction showed average milk prices up 3.1% since last auction. This was a very strong result, taking prices to +8.9% since the start of year.

This is in line with our broader view that positive NZ commodity price trends should help underpin the NZD this year. Near-term, major resistance for the NZD/USD remains at 0.8530. Support is eyed at 0.8400.

In the backdrop of a weak GBP the NZD/GBP reasserted itself overnight. It now sits at 0.5500, close to its highs this month.

Any weakness in UK employment data tonight, or a dovish tone from the Bank of England’s minutes could be the catalyst to launch the NZD/GBP to new post-float highs.

The NZD/AUD traded a bumpy path over the past 24-hours, but has returned to trade around 0.8190. Today, there is an array of mostly 2nd teir data on both sides of the Tasman.

Domestically we get producer prices, capital goods prices, and crown accounts.

The AU leading indicator and wage cost index are released. However, look out for RBNZ Governor Wheeler’s speech to the NZ manufacturer’s employers association this afternoon, which is now ‘on the record’. Expect the NZD to receive some discussion.

Key near-term NZD/AUD resistance remains at last week’s peak around 0.8230 that marked 2 ½ year highs.

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Majors

The EUR/USD was stronger overnight. The AUD was the strongest performer over the past 24-hours.

Overnight, general market sentiment was buoyed by stronger-than-expected German economic sentiment shown in the ZEW survey (48.2 vs. 35.0 expected).

This helped the Euro Stoxx 50 record a 1.75% gain. The VIX index (a proxy for risk aversion) remains close to its lowest level in six years.

The EUR/USD was also a beneficiary of the better German sentiment, which sits at its highest level since early 2010. The EUR/USD traded up from 1.3340 to around 1.3390 this morning.

Conversely the USD index slipped from overnight highs above 80.65 to sit around 80.50 this morning.

The AUD made a solid 0.6% gain relative to the USD over the past 24-hours. It initially started on its upward path after the release of the February RBA minutes.

These resulted in the market inching down expectations for a rate cut at the next meeting to 25% (30% previously).

Overnight, as market sentiment was generally buoyant the AUD benefitted from demand for ‘risk-sensitive’ assets. The AUD/USD traded up to sit just above 1.0360 currently.

The GBP continued its slump overnight, to sit around 1.5420. The currency will be in the spotlight tonight as the Bank of England releases its most recent minutes, and UK employment data are released.

The GBP/USD is now fast approaching its crucial support level around 1.5290. This has marked the bottom of the currency’s trading range on numerous occasions since mid-2010. However, UK data is still lacklustre.

The market also anticipates the June arrival of new BoE Governor Carney, who is widely believed to be of dovish leanings. It may be a challenge to arrest the current GBP/USD fall.

Tonight, US housing starts data will also be released, along with Eurozone consumer confidence. US Federal Reserve minutes will also be released. As always, every word will be dissected for indications of when the Fed intends to take the first steps in reigning in its ultra-loose monetary policy.

All its research is available here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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