By Kymberly Martin
NZ Dollar
The NZD/USD was dragged lower in the early hours of this morning to trade at 0.7570 at present.
The NZD/USD took an initial step lower yesterday morning after the release of NZ Q4 CPI (-0.2%q/q vs. consensus expectation 0.0%).
In our forecasts lower readings are yet to come on the back of the recent plunge in the global oil price.
The NZD/USD was then looking a little perkier overnight until the Bank of Canada surprised the market with a rate cut.
Coming hot on the heels of the NZ CPI release the market can be forgiven for seeing the two markets as a rhyming couplet. The NZD/USD promptly fell from above 0.7700, through key support, to its current level around 0.7570. The currency is now at its lowest level since June 2012.
The NZD was also sharply lower on the crosses overnight, with the exception of the NZD/AUD (The AUD was similarly impacted by the BoC move).
However, the NZD/AUD had taken a sharp step lower yesterday morning after the release of NZ CPI. The NZD/AUD trades at 0.9350 currently.
The fall in the NZD/JPY overnight was notable. From 90.80 early last evening the cross now sits at 89.40. The fall in the NZD/GBP also drew some attention with the cross once again flirting with the psychologically important 0.5000 level.
Today the BNZ Dec Manufacturing PMI will be released. The previous reading stood firmly in expansion at 55.2. The ANZ-RM consumer confidence index will also be released. We see strong support for the NZD/USD at 0.7460. Resistance is eyed at 0.7620.
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Majors
“Commodity-linked” currencies have been the worst performers, led lower by the CAD. The CHF has been the strongest performer.
Overnight, the Bank of Canada was the latest in a growing line of Central Banks to surprise the markets by cutting rates to head-off low-side inflation. On the announcement the USD/CAD gapped from 1.2070 to 1.2250, subsequently pushing up to 1.2380. It is at its highest level since April 2009.
The sharp fall in the CAD also took its toll on other “commodity-linked” currencies, the AUD and NZD. There are perceived similarities between the AUD and the CAD by virtue of both belonging to energy producing nations.
However, the market is likely also making the connection that the RBA and RBNZ are two of the only developed market Banks to still have notable capacity to cut rates. The AUD/USD has fallen from intra-night highs above 0.8220 to 0.8080 currently. Support is now seen at the early-months lows of 0.8030.
The CHF has strengthened further against the USD overnight, as investors take refuge in the Swiss Franc ahead of tonight’s ECB meeting. The USD/CHF now trades at 0.8640, still some way above the level it initially plummeted to when the SNB removed its CHF/EUR cap last week.
Volatility in the EUR/USD was pronounced overnight, in a precursor to what can likely be expected tonight, surrounding the ECB’s meeting. Reports overnight have raised the hurdle of expectations for the ECB (see Fixed Interest). The EUR/USD currently trades around 1.1570.
As a side show tonight, the US will release its Jan Manufacturing PMI and the EU its consumer confidence indicator.
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