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Choppy trading in USD/JPY; Abe on watching brief and will act to smooth out Yen movements; NZD & AUD give up intra-day gains; USD strengthens ahead of payrolls report

Currencies
Choppy trading in USD/JPY; Abe on watching brief and will act to smooth out Yen movements; NZD & AUD give up intra-day gains; USD strengthens ahead of payrolls report

By Kymberly Martin

The USD strengthened against European currencies overnight. The AUD and NZD trade at a similar level as yesterday morning after giving up intra-day gains.

It was a relatively quiet night. The market is awaiting the key release of the week, the US employment report.

Also most core European centres were on holiday to mark Ascension Day.

Equities were essentially flat on either side of the Atlantic. The WTI oil price is currently in the process of giving up its hard-won gains from the evening.

The USD pushed higher from yesterday afternoon, ahead of tonight’s US payrolls report. The USD index is now 2% above early-month lows.

In order to maintain the rebound in the USD, a solid payrolls release would likely need to be accompanied by stronger-than-expected average hourly earnings growth. This could prompt the market into increasing its expectations for Fed rate hikes this year. Currently the market only prices around a 50% chance of one more Fed rate hike by year-end.

There was some choppy trading in the USD/JPY overnight. It now trades at 107.30. Yesterday, Japan’s Prime Minister, Abe, said that abrupt changes in the level of the Yen are undesirable. He said they are monitoring movements carefully and would respond if necessary. He said he may raise the issue of fx volatility at a meeting of G7 leaders in Japan later this month.

The CHF was the weakest performing currency overnight, declining more than 1% versus the USD. This did not reflect a notable improvement in global risks appetite, the usual proximate cause of underperformance of the ‘safe haven’ CHF. Our global risk appetite index remains at a modest 43%.

The AUD/USD and NZD/USD both traded higher during the day, but have subsequently returned to levels traded yesterday morning. They sit at 0.7460 and 0.6880 respectively this morning.

We continue to see resistance for the NZD/USD at 0.7050, while support will likely be encountered on any pull-back toward 0.6800.

There are no domestic data releases today, so the fate of the NZD/USD into weekend likely lies with the release of the US employment report.


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

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