By Raiko Shareef
The USD is sharply weaker this morning, with EUR once more testing 1.10 and AUD posting a near 2.0% gain to sit above 0.80.
Softness US consumer confidence helped, but the move was underway well before that. The Bloomberg Dollar Spot Index is 0.6% lower for the day.
The US consumer confidence report printed at a four-month low of 95.2, well below market expectations.
Survey respondents noted lower availability of jobs and higher gasoline prices as factors.
The data miss has helped to keep US data surprise indices deeply in negative territory.
The strong inclination to continue selling the USD was made abundantly clear in GBP reaction to the UK’s Q1 GDP report. That printed well below expectations at 0.3% q/q, initiating a quick 50 bp fall to 1.5180 in GBP/USD. But that reversed extremely sharply, and GBP sits 0.6% stronger for the day at 1.5320.
The AUD sits in pole position by some margin, benefitting in particular from the lengthening of odds on an imminent RBA rate hike.
A healthy bounce in iron ore prices and the London Metals Exchange Index will have acted as tailwinds.
We note, too, reports that China is planning to introduce liquidity- and lending-boosting measures to aid the country’s banks. These would take a form similar to the ECB’s long-term refinancing operations, according to the WSJ.
From here, the consolidation in the USD seems ripe to extend, especially if tomorrow’s FOMC statement signals little change from March’s watch-and-wait stance.
Clearly, a downside miss in US Q1 GDP would instigate further weakness. As our NAB colleague Gavin Friend points out, the US Dollar Index sits almost exactly on support at 96.17, which has marked the low twice over the past month.
In the face of USD weakness and AUD outperformance, NZD had nowhere to go but higher.
It continues to form a base above 0.76. We expect it to track within a 0.75 – 0.78 range over the near-term, at least until US data improves materially.
AUD’s outperformance has seen NZD/AUD sent sharply down to one-month lows at 0.9640.
This takes the cross back within the range of where fundamental models assess it should be. Our short-term ‘fair value’ model signal 0.9430 as appropriate.
To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.