By Kymberly Martin
The USD has weakened further overnight. The GBP has been a strong performer while ‘commodity-linked’ currencies have also performed well.
Markets were relatively orderly at the start of the week. Equities have made modest gains, along with reduction in measures of European credit risk aversion. Commodities have generally been a bit stronger, with the WTI oil price contributing a 1.0% gain.
This has helped support ‘commodity-linked’ currencies such as the CAD, AUD and NZD. The USD/CAD, at 1.2910, is now close to range lows, having decline around 12% since mid-January.
The rebound in the global oil price has been a key contributor. Aided by last week’s strong Canadian employment report, the market may also be preparing itself for the Bank of Canada to upgrade its tone at tomorrow night’s meeting. The Bank is expected to keep its cash rate at 0.5%.
The NZD has pushed higher overnight. From early-evening trading below 0.6800 it now sits around 0.6860. This remains comfortably within recent ranges, the top of which sits around 0.6960.
Over the longer-term our core view remains that we have not yet seen the cyclical low for the NZD/USD. Our expectation for easier NZ monetary policy supports our view of a weaker NZD but in itself will not be sufficient. This is especially true when other central banks are also implementing easing.
Our forecast for a lower NZD/USD as the year progresses is also predicated on the US Fed delivery more tightening than the market currently expects. We have 50bps of hikes pencilled in for H2 whereas the market currently prices less than a 50% chance of one hike. That is probably more “cautious and gradual” than even doves on the US FOMC have in mind.
The GBP/USD lurched higher last evening. From just above 1.4100 it rapidly found itself above 1.4200. It has subsequently built on that gain to trade at 1.4250 currently. As the 23 June EU Referendum approaches and polls show a close vote the GBP will remain vulnerable to bouts of volatility. Last week’s CFTC data showed speculative positioning in GBP has moved from -40k to -46.5k, representing the negative sentiment that already overhangs the currency.
The AUD/USD also trades higher this morning, at around 0.7600. Today’s focus across the Tasman will be the release of the NAB business survey.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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