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Minutes from major central banks reveal little as markets drift and focus on upcoming data. NZ Budget unlikely to move the NZD

Currencies
Minutes from major central banks reveal little as markets drift and focus on upcoming data. NZ Budget unlikely to move the NZD

By Raiko Shareef

The USD, at an index level, is almost exactly where it was at this time yesterday.

Against the majors, its performance has been mixed, with the GBP outperforming as the (pre-election) BoE Minutes noting the risk of rising inflation towards year-end.

The FOMC’s April Minutes failed to shed much fresh light, with the cautious tinges largely expected.

Investors initially grasped at the headline that “many” FOMC participants viewed a June lift-off in rates as unlikely. That would be fairly reflective of the market’s own view, especially with the unconvincing nature of US economic data since the April policy meeting.

In short though, and as of the April meeting, policymakers saw the risks to the US outlook as narrowly balanced. There was plenty of discussion on why they believe the weakness in Q1 will be proven temporary, including the wintry conditions and the West Coast port strike. But these comments predate the mixed April data. We are more interested to know whether the FOMC still firmly believes that the economy will return quickly to above-trend growth.

In the next two days, we will get one (if not two) opportunities to gauge those views. Fed Vice Chair Fischer is set to speak at an ECB conference on central banking, where he may make comments on current US monetary policy. But more importantly, Fed Chair Yellen is due to deliver a speech explicitly on the US economic outlook. That will be the last opportunity to get a read on the Chair’s thoughts ahead of the 18 June policy decision.

The only other piece of notable news overnight was the release of the BoE’s May Minutes, which covered a discussion that preceded the General Election. GBP’s gain today was largely assisted by a reference to inflation picking up “notably” toward the end of the year. NAB’s FX Strategist in London, Gavin Friend, notes that these comments do not reflect the fiscal contraction likely to come as a result of the Conservatives’ surprisingly convincing victory, nor the (disinflationary) surge in GBP as the election’s outcome became clear. Both these factors will likely pare the BoE’s appetite for near-term rate hikes.

NZD was among the underperformers overnight, though with no obvious drivers. Note that a close below 0.7330 would confirm the break of a supportive technical uptrend. This would open up a test of 0.72, but broad-based USD strength would likely be needed to instigate such a move.

Today’s Budget is unlikely to have a meaningful impact on NZD, though we will be watching the Treasury’s economic forecasts (and the headlines they could generate) closely. A swathe of manufacturing data due overnight will set the tone for markets.


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

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