Market struggles to digest Draghi's mixed message; AUD gets boost as trade deficit shrinks; market focussed on US unemployment data

By Kymberly Martin

The JP/USD has continued to strengthen overnight. The EUR/USD is a little lower after a volatile response to the ECB’s meeting. The NZD/USD remains at 0.6800.

There was some marked volatility in currency markets around the ECB’s announcement and subsequent comments by President Draghi in the early hours of this morning. The market appeared to struggle to digest mixed messages.

When Draghi was directly asked about the EUR and whether there was a recent G8 agreement on currencies, Draghi repeated that FX is not a policy tool, but is important for price stability. He seemed not to want to be drawn too far. The EUR/USD spiked higher during comments but later drifted lower, to trade at 1.1150 currently.

The JPY has continued its steady ascent overnight. It steered clear of much of the transatlantic volatility overnight. From 109.60 last evening the USD/JPY now trades at 108.80.

The AUD gained a brief boost yesterday afternoon following the release of data showing a lower AU trade deficit than expected. This was due to a 1% rise in exports and 1% drop in imports. The numbers are an early pointer to yet another strong net export contribution to GDP growth for Q2. By contrast, AU April retail sales were disappointing. After initially spiking toward 0.7270 the AUD/USD lost its lustre as the afternoon progressed. It now trades at 0.7220.

The NZD/USD has traded between 0.6780 and 0.6830 over the past 24-hours. It now trades at a similar level to yesterday morning, around 0.6800. The NZD/AUD has nudged a little higher. At 0.9420 it now has the highs of its range of the past year in sight. These lie between 0.9490 and 0.9530.

There are some 2nd tier NZ data releases due today, but the market will have its focus clearly on tonight’s US payrolls report. Last night’s US ADP employment report provided little insight into the risks around tonight’s number. A non-farm payrolls number, at least in line with consensus expectations (160k), and solid average hourly earnings growth will likely be required to keep a June/July Fed hike in the markets’ sights, and USD underpinned.  Currently the market prices 7bps of Fed hikes by June and 15bps by the July meeting.

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