In a night light on data delivery many currencies traded fairly tight ranges, as equity markets provided modest negative returns. However, the GBP and NZD were clear exceptions.
After its period of post-election consolidation the GBP/USD caught an updraft late last evening, ahead of the Bank of England’s meeting. There were no surprises as the Bank left the cash rate at 0.50% with no accompanying statement. The market will now be looking toward the Bank’s regular release of its inflation report on Wednesday. The market has slightly nudged higher its expectation for future BoE activity. It now fully prices a 25bps hike by mid next year. The GBP/USD has risen from 1.5400 last evening to 1.5590 currently.
It was a relatively quiet night for trading in the EUR and USD. After some volatility earlier in the day the EUR/USD traded between 1.1130 and 1.1170 for much of the night. It is once again fairly light on data on either side of the Atlantic this evening, although focus will remain on Greece. With a €750m payment due to the IMF there does not appear to be a breakthrough in negotiations ahead of tonight’s deadline.
NZD/USD has had the dubious honour of being the worst performing currency by some margin over the past 24-hours.
The currency has declined around 1.8% versus the USD since the end of last week. Increased speculation of RBNZ rate cuts appears to have been a key contributor to the weakness.
While much of the NZD/USD decline occurred yesterday morning, the negative momentum was maintained overnight. The NZD/USD now trades at 0.7350. The currency remains within the broad band it has traded for the past four months. A strong line of technical support remains at the bottom of this range, just below 0.7200.
There are no domestic data releases today.
The market will be looking toward tomorrows’ release of the RBNZ’s Financial Stability Review. Signs the Bank is progressing in its plans to regulate “investor” home loans may encourage the market in pricing rate cuts. i.e. the market may assume if the Bank can ‘deal with’ the housing problem via macro-prudential tools it will open the way for rate cuts to spur CPI inflation. We are not convinced by this simple logic. However, it could encourage further NZD weakness.
Unsurprisingly, the NZD is also sharply lower on all the major crosses, most strikingly versus the GBP. Since the start of the week the NZD/GBP has traded steadily down from 0.4850 to 0.4720 currently. In doing so it has burst through the key line of support around 0.4800. The cross now trades at its lowest level since April 2011.
The NZD/AUD has also continued its slide, breaking through the 200-day moving average overnight, to trade at 0.9300 this morning. Support is now eyed at the late-Jan lows of 0.9260. Today, the AU Budget will be released, with some potential to influence sentiment toward the AUD.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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