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Risk sensitive markets were fairly buoyant overnight despite geopolitical tensions, sanguine Stevens gives AUD a boost

Currencies
Risk sensitive markets were fairly buoyant overnight despite geopolitical tensions, sanguine Stevens gives AUD a boost

by Kymberly Martin

NZ Dollar

The NZD/USD sits a little lower at 0.8660 this morning.

The NZD/USD drifted lower during the course of yesterday in the absence of domestic data releases, as NZ yields drifted lower.

A speech by RBNZ’s Spencer yesterday, on financial sector regulation, provided nothing of interest to the currency.

In the early hours of this morning, the NZD/USD briefly spiked higher after the low-side reading of US CPI. From below 0.8660 it briefly spiked toward 0.8700.

However, later this morning as the USD recovered, the NZD/USD drifted back down to 0.8660.

Support is now seen at 0.8650 ahead of 0.8600. Resistance will likely be encountered approaching 0.8720.

The NZD sits lower again relative to the AUD. The AUD was on the ascendancy yesterday, assisted by the lack of any explicit AUD negative comments by RBA Governor Steven in his scheduled speech.

The NZD/AUD sits at 0.9220 this morning.

Today, in the absence of NZ domestic data, a key determinant of the cross will likely be this afternoon’s (1.30pm NZT) AU CPI release.

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Majors

The USD sits higher this morning, while the AUD was the key outperformer over the past 24-hours.

The negative news flow surrounding the Ukraine situation continued overnight. The EU is considering restricting Russia’s access to capital markets unless President Putin cooperates more fully with the MH17 investigation.

Despite this, risk sensitive markets were fairly buoyant overnight. The Euro Stoxx 50 closed up 1.7% while the S&P500 is currently up 0.6%, assisted by some positive Q2 US earnings reports.

The release of US CPI overnight came in slightly below expectation (1.9%y/y vs. 2.0% expected). In the detail, inflation was held down by a fall in hotel and car prices. We doubt this marks the start of a downtrend in inflation, but for now it will soothe immediate inflation anxiety.

This helped to support market sentiment as US bond yields remained contained. US June existing home sales also beat expectation (2.6% vs. 1.9%).

The USD experienced some volatility as the market absorbed the CPI release, but found its feet again after the release of home sales and Richmond Fed data. The USD index sits at 80.8 this morning, back at early-June highs.

The EUR/USD was a casualty of US strength, declining from 1.3530 to 1.3470 overnight.

The AUD was initially boosted yesterday afternoon by the scheduled speech from RBA Governor Stevens. The currency seemed to respond to what he didn’t say, rather than what he did. Generally the speech was at a high level on “Challenges for Economic Policy”. Although he commented on the global search for yield, which partly explains AUD strength, he didn’t have any specific negative words for the currency. Overnight, the AUD/USD briefly spiked above 0.9420 after the US CPI release, but now sits a little lower at 0.9390.

Today the focus for the AUD will be the release of AU 2Q CPI. Consensus expects the trimmed mean measure to touch 0.6%q/q (2.7%y/y), up from 0.5% in 1Q. This should provide nothing to cause the RBA to deviate from its mantra that it will be on hold for an extended period. Any upside surprise could provide a temporary boost to the AUD, given the market currently prices around a 50% chance of a 25bps RBA cut in the year ahead.

Tonight, the Bank of England Minutes will be released.

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Source: CoinDesk

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