NZD/USD gains more than 1% over past 24-hours; markets steadily putting back expectations for Fed hike; Aussie employment data sees sharp drop in AUD

By Kymberly Martin

The NZD is again the strongest performer, despite an early morning boost to the USD. The NZD/USD trades above 0.6860 currently.

Risk appetite was steady overnight, as equities provided positive returns on either side of the Atlantic and credit spreads narrowed.

Our global risk appetite index (0-100%) has now been fairly steady in the mid to high 40s for the past week.

This has allowed the ‘risk sensitive’ NZD and AUD some room to breathe. In addition, domestic data delivery has generally been solid (as per yesterday’s BNZ PMI and consumer confidence index). This has assuaged some of the market’s previous concerns regarding slowing momentum in the NZ economy. Finally, the RBNZ has confirmed itself a ‘reluctant cutter’.

Meanwhile the market has been steadily pushing back its expectations for Fed rate hikes. Put together, these factors have provided a fertile environment for the NZD to rebound.

Even after the USD gained a boost in the early hours of this morning, from a stronger-than-expected US CPI release, the NZD was able to recover.

Overall the NZD/USD has gained more than 1% over the past 24-hours to trade around 0.6860 this morning.

The test for the NZD today will be this morning’s release of NZ Q3 CPI. We look for a 0.2%q/q release. Overall risks are likely tilted to the downside. However, if a high-side outcome were to eventuate it would likely be the result of the pass-through of the weakening NZD earlier this year.

The NZD has also extended its gains on the crosses. The NZD/AUD now trades at 0.9350, having touched early morning highs approaching 0.9400. The cross gained a sharp boost yesterday afternoon after the release of the AUD employment report.

The headline monthly decline in AU employment grabbed the market’s attention, causing a sharp step down in the AUD. However, the AUD managed to regain its composure overnight to trade at 0.7340 currently.

European currencies and the JPY were all knocked lower in the early hours of this morning after the release of US Sep CPI data. Its modest increase to 1.9%y/y, from 1.8% previously, also prompted the market to price a slightly higher chance of a near-term US Fed rate hike. The EUR/USD sits somewhat lower, at 1.1400 this morning.

Tonight the Eurozone delivers its own CPI reading, though this is expected to remain extremely subdued. There are also a handful of US data releases to look out for.

Get our daily currency email by signing up here:

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