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The AUD stars on the back of the Australian Budget. NZD/AUD now at its lowest level since mid-December

Currencies
The AUD stars on the back of the Australian Budget. NZD/AUD now at its lowest level since mid-December

By Kymberly Martin

The USD has weakened overnight while the AUD has been the strongest performer.

It was a slightly soggy night for equity markets as the Euro Stoxx 50 closed down 1.4% while the S&P500 is down a more modest 0.2%. However, commodities have enjoyed a bit of a rebound, led by oil. The WTI oil price is up 2%, which has helped ‘oil-linked’ currencies, NOK and CAD appear amongst the strongest performers.

Overnight the EUR traded a similar pattern to German bond yields, rising throughout the evening before pulling back in the early hours of this morning. There has been no breakthrough in Greek negotiations, although the German finance minister did say “the atmosphere in talks has improved”. Currently the EUR/USD trades someway below its intra-night highs, at 1.220.

The GBP received a further boost overnight when UK March industrial production data surprised to the upside. From 1.5560, the GBP/USD surged above 1.5700 (its highest level since mid-Dec), before consolidating. It trades at 1.5680 this morning,

However, the star performer of the past 24-hours has been the AUD.

Positive momentum for the AUD/USD kicked in yesterday afternoon and was not curtailed by the release of the AU Budget. The Budget did not provide too many surprises as key changes had been pre-announced/leaked.  The AUD/USD trades just below 0.8000 currently.

NZD/USD  moves have been less impressive. The NZD/USD did briefly poke its nose above 0.7400 overnight, but has subsided to trade at 0.7370 currently. Support is eyed around 0.7280, ahead of 0.7200 which has marked the bottom of the NZD/USD’s trading range this year.

The NZD/AUD has continued to fall, bypassing technical support at the late-Jan lows of 0.9260. The NZD/AUD now trades at 0.9220, its lowest level since mid-December.

The recent fall in the NZD/AUD has been consistent with narrowing in NZ-AU rate differentials. For example, NZ-AU 2-year swap spreads have compressed from close to 160 bps in late March to 116 bps currently. This has occurred as the market has reduced expectations for further RBA cuts (only 11 bps now priced) while increasing pricing of RBNZ cuts (40 bps now priced).

Today, we will look to the RBNZ’s FRS to potentially impact on the market’s OCR expectations.

This afternoon, sentiment toward the AUD will likely be influenced by the release of Chinese data, including industrial production for April.


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Kymberly Martin is on the BNZ Research team. All its research is available here.

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