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Hawkish tilt to Fed minutes sees USD kick higher although concern on slack labour market lingers

Currencies
Hawkish tilt to Fed minutes sees USD kick higher although concern on slack labour market lingers

By Kymberly Martin

NZ Dollar

The NZD/USD has slipped to 0.8380 this morning. It spent most of yesterday afternoon flirting with the 0.8400 level that had marked the low on the currency since March this year.

In the early hours of this morning, after a hawkish tilt to US Fed Minutes spurred broad USD strength, the NZD/USD has slipped to 0.8380.

The NZD/USD appears to still be clinging on for dear-life, but a convincing break of this level would open the way for the next leg down. We continue to target 0.8000 by year-end.

The NZ TWI (the RBNZ’s benchmark) also sits lower, at 79.00 this morning. This is now in line with the RBNZ’s Q4 forecast average.

On the crosses, the NZD is stronger relative to the JPY but generally weaker elsewhere.

The NZD/AUD now sits at 0.9030., having broken through previous support levels in recent days. The cross may be influenced by the release of the HSBC China Manufacturing PMI today (1.45pm NZT). Any upside surprise (consensus 51.5) would likely favour the AUD over the NZD.

Today the domestic focus will be release of NZ net migration data. Strong net migration trends are something the RBNZ has previously highlighted as adding to demand pressures in the economy.

In addition, the August ANZ consumer confidence survey will be released today. July’s reading was a very robust 132.7. Both these signs of domestic solidity could work to try and support the NZD/USD today. However, its fate may be determined by broader sentiment toward the USD as the market awaits the kick-off of the Jackson Hole Conference this evening.

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Majors

The USD has strengthened against all its peers after the release of the US Fed’s Minutes.

The USD index had traded with a slight incline overnight, but surged higher after the release of US Fed Minutes early this morning. These showed continued concern that there was notable slack in the labour market, but that “the likelihood of inflation running persistently below 2 percent has diminished somewhat”. Many members also thought assessment of the labour market may have to change soon if it continues to make faster progress than anticipated.

Finally, many Fed participants also noted “it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated”. So overall, the balance of risk appears to be shifting. The more hawkish tone saw the USD push higher, along with US Treasury yields. The USD index sits above 82.20 currently. An abrupt toll was also taken on emerging market currencies.

The JPY has recorded the greatest losses versus the USD over the past 24-hours (-0.7%). The prospect of the US Fed reigning in monetary stimulus stands in stark contrast to the Bank of Japan’s need to continue to support the economy. The USD/JPY sits around 103.70 this morning. This is pushing toward the top of the range that has contained it since January.

The GBP experienced a spurt higher early last evening after the release of the Bank of England’s Minutes. But the spike toward 1.6680 proved short-lived, and the GBP/USD has subsided post Fed Minutes, to trade at 1.6600.

Today, the local focus will be the HSBC China PMI release. Tonight, Eurozone and US PMI data will be released along with the US Philadelphia Fed survey.

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Source: CoinDesk

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