US major currency TWI index has risen strongly on better data and possible Fed tightening; G7 leaders fail to agree on how to improve global growth

By Jason Wong

It was a fairly quiet and uneventful end to the week. The NZD ended well bid, while GBP came under some pressure after a decent rebound.

Global equity markets ended the week on a positive note, with the S&P500 up 0.3%, Europe’s Stoxx-600 up 1.2% and other markets showing positive returns.

There was little news and data, and the much of the returns reflected a recovery from falls in the previous trading session.

The NZD ended the week on a positive note, rising 0.3% to 0.6765, within 10pips of the level where it started the week and close to the middle of the 0.65-0.70 trading range we expect over the next couple of months.

With the AUD down ever so slightly, NZD/AUD closed the week at 0.9365, it highest daily close since mid-February. The first area of resistance is around the 0.9450 mark, an area which the currency threatened a few times but never sustainably broke through during December to February. The cross has shown good strength since weak Australian inflation data triggered an RBA rate cut. Conviction in the RBNZ following suit has been waning over the past couple of weeks, contributing to NZD strength.

The USD ended the week on a flat note, with buying interest exhausted after a decent run spanning the last three weeks. The US major currency TWI index has risen 3½% over this period, with better economic data and rising expectations of further possible Fed tightening over coming weeks explaining the move.

GBP/USD fell by 0.7% to 1.4502, breaking a 4-day winning streak after a series of polls raised the probability of the UK remaining in the EU after the 23 June referendum.  While Friday’s fall in GBP likely reflected traders taking profit ahead of the weekend, a couple of Bank of England officials suggested that the UK’s economic slowdown was due to more than just the risk of voters choosing to leave the EU.

Over the weekend, the G7 meeting of Finance Ministers and central bank heads came and went with no agreement on how to improve global growth, leaving individual countries to devise their own strategies. The leaders reiterated that countries should avoid resorting to competitive currency devaluations to generate growth at the expense of other nations. On the sidelines of the meeting, Japanese officials continued to try to talk down the yen, expressing concern about excessive movements in the yen, but the US disagreed, saying movements had been orderly.

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