by Kymberley Martin
NZ Dollar
Reversing the previous day’s moves, the NZD stands out over the past 24-hours as the weakest performing major currency.
The NZD/USD sits 0.70% lower, at 0.8680.
The initial catalyst for the decline was comments from RBNZ Governor, Wheeler, in a prepared speech.
Ostensibly the speech was focused on the NZ dairy sector, but seemed a thinly veiled vehicle to reinforce the RBNZ’s views on the NZD.
The market latched onto the following statement. “If the currency remains high in the face of worsening fundamentals, such as a continued weakening in export prices, it would become more opportune for the Reserve bank to intervene in the currency market..”.
It has been a long time since the ‘i’ word has been used, and not one the Governor would use lightly.
Still, it will be the Bank’s goal that by threatening such action it will not need to implement it.
The subsequent release of NZ labour data provided no reason for the NZD to halt its decline.
While activity indicators in the report were very strong there were limited inflationary indicators.
The NZD/USD fell from 0.8740 yesterday morning before stabilising around 0.8680 overnight.
It was notable NZD weakness did not extend overnight. Support for the NZD/USD is now seen in the 0.8630-40 window.
The NZD also showed a similar pattern of trading on the crosses, falling sharply yesterday morning before stabilising overnight.
The NZD/AUD has declined from 0.9350 to 0.9290 currently.
Today, the fate of the NZD/AUD likely lies with the AU employment report, due at 1.30pm (NZT).
Domestically, QV house price data is due for release and finance minister English is scheduled to speak at the INFINZ dinner tonight.
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Majors
Most currencies have traded with very little pulse over the past 24-hours, with the exception of the notable decline in the NZD. The USD index is virtually unchanged at 79.20 this morning.
Despite Yellen’s speech early this morning, that prompted a rally in US Treasuries, there was only the briefest of response from currencies. The speech was purposely vague, but expectedly dovish. Ingrained lethargy appeared the overall theme in currency markets in a relatively data-light night of trading.
Equities were marginally positive on both sides of the Atlantic. This was despite the release of US 1Q Unit Labour Cost data that showed a rise in ULCs (4.2% vs. 2.8%), due to a plunge in productivity. Normally this would be a negative indicator for profitability and equity markets. However, like so much US 1Q data the market seemed willing to excuse it due to harsh weather impacts.
Meanwhile, with around 85% of the S&P500 companies having now reported 1Q earnings, the positive earnings surprise stands at 6.1%.
There was a small flurry of European data releases last evening. e.g. the release of German March factory orders (-2.8%m/m vs. 0.3% expected) briefly caused the EUR/USD to dip. But overall the currency tracked only marginally lower, to sit at 1.3920 this morning.
Today, the local focus will be on the release of the AU employment report. Our NAB colleagues expect the unemployment rate to nudge back up to 6.0% from 5.8%, due to a rise in the participation rate.
Tonight, the ECB announces rates. There is certainly pressure on the ECB to act. There are demands for it to underpin the regions still sluggish recovery and fend of deflationary pressures. But consensus does not expect any change to rate settings tonight.
The Bank may satisfy itself with attempting to talk down the EUR and reiterating it stands “ready to act”.
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