Dovish Fed minutes spur risk with stocks, gold, oil all higher and the USD lower; Aussie jobless rate to rise

by Kymberly Martin

NZ Dollar

The NZD/USD has broken to new highs after the release of US Fed Minutes this morning. It sits at 0.8720 currently.

Ahead of the release the NZD/USD slid overnight, to around 0.8650. However the slump was rapidly reversed after the Minutes, which the market took to be fairly dovish (see Fixed Interest). As the USD and US Treasury yields fell, the NZD was a key beneficiary. The NZD/USD has pushed above turn-of-the-month highs to sit at its highest level since it spiked above 0.8800 in July 2011.

However, the NZ TWI, which is the measure more closely tracked by the RBNZ, sits a little below early March highs, at 80.80. The pull back in the NZD/AUD since this time has contributed.

However, the NZD/AUD was on a bit of a roller-coaster overnight. Bumping its way down to lows of 0.9250 early this morning it was launched back up to 0.9280 after the release of Fed Minutes. The key for the cross today will be the release of the AU employment report. A tick up in the unemployment rate, that we expect, could see the NZD/AUD extend its rebound.

There was a fair amount of drama on most NZD crosses, post the Fed Minutes, but the most notable rise occurred on the NZD/JPY. The JPY itself was little moved by the release which saw the NZD/JPY jump from 88.20 to 88.80.

Today the BNZ March PMI will be released. We see little reason for it to have lost its vigour after the solid 56.2 reading in February.

----------------------------------------------------------

To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.

----------------------------------------------------------

Majors

Most currencies traded fairly tight ranges ahead of the release of this morning’s US Fed Minutes. Post the release the USD fell against all major currencies.

It was a relatively quiet night ahead of the release of Fed Minutes. Equities provided modest positive returns with the Euro Stoxx 50 up 0.2%. Alcoa kicked off the S&P500 earnings reporting season with a mixed result. It stated aluminium prices had dropped 8% from a year ago, but its profit beat expectations after excluding charges to idle capacity.

But post the release of Fed Minutes US equities surged higher. The S&P500 is currently up 0.80%.

The Minutes struck a dovish tone. As US Treasury yields plunged, so did the USD. The USD index sits around 79.50 currently, approaching its mid-March lows.

All major currencies benefitted. The AUD/USD rebounded from 0.9350 toward 0.9400, a new high since late November. Today brings the AU data highlight for the week, the March employment report. Our NAB colleagues expect the unemployment rate to rise to 6.2%, assuming the participation rate remains steady at 64.8%. This is slightly above consensus expectation, at 6.1%. This could take some shine off the AUD today.

The EUR and GBP also strengthened relative to the USD post Fed Minutes. The GBP/USD popped from 1.6730 to 1.6790. This level has marked the top of its range in recent months and its highest levels since late 2009.

The only major currency not to strengthen relative to the USD over the past 24-hours was the JPY. The USD/JPY trades at 101.80, at a similar level to yesterday morning.

Today the China trade balance will be released. This has potential to impact on general sentiment and more directly the AUD.

Tonight the Bank of England announces rates and the ECB publishes its monthly report. The BoE meeting should be a bit of a non-event with no change to rates or asset purchases expected.

All its research is available here.