Hawkish comments from Fed member; JPY gives up recent gains as risk sentiment improves; Australian business confidence rising; oil price jumps 3.8% overnight

By Kymberly Martin

‘Commodity-linked’ currencies continued their strong performance overnight. The JPY gave up a little of its recent gain.

There was choppy trading in the USD and European currencies overnight. Despite some volatility the USD index now trades not far above where it was yesterday morning.

Early this morning there were some rare, of late, hawkish comments from a Fed member. Harker (non-voter) said it is possible the Fed could hike at least three times in 2016. He said every meeting should be considered live, including the April FOMC. That is unlikely to have the market on the edge of its seat. It currently prices virtually no chance of a hike at the 27 April meeting. However, his comments do highlight the continued divergence of opinions with the wider Fed group.

Weakness in the JPY was notable overnight. From 108.00, the USD/JPY has traded up to 108.60. The improved general risk sentiment and positive equity markets (including the Nikkei) have likely contributed to the ‘safe haven’ JPY giving up some of its recent gain. Still, it remains more than 10% above its early-February level versus the USD.

Global commodity prices were generally stronger overnight. The WTI oil price is up 3.8% and the broad CRB commodity index is up 1.9%. This helped support performance of ‘commodity-linked’ currencies including the NZD and AUD.

The AUD was briefly boosted yesterday afternoon following the release of a stronger NAB business survey. Not only has the Australian business environment weathered global uncertainties, but there are signs the non-mining recover is becoming a little more broad-based. The AUD/USD extended its gains overnight to trade at 0.7690 this morning.

The NZD/USD traded a fairly steady path higher from yesterday afternoon, currently sitting around 0.6920. Resistance remains at late-March highs of 0.6970. We do not see fundamental justification for the NZD to extend gains. Ahead of Monday’s NZ CPI release, we are now positioned for a lower NZD/AUD. From above 0.9020 overnight we initially look for a move down below 0.8880.

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