The poor US employment figures released on Friday night continue to reverberate through financial markets.
The USD is the worst performing major currency, down to its lowest level in a month on the major currency TWI basket, while the AUD is strong, following the RBA announcement yesterday afternoon.
The weaker USD in a world where we’re likely to see low rates for longer is supporting risk sentiment, driving up global equity markets.
The S&P500 is up 0.4% to a 10-month high, key European indices are up over 1%, and most Asian equity markets showed good gains as well.
The AUD tops the leaderboard, up 1.2% to 0.7455. As well as better risk appetite, the currency was boosted by the RBA’s neutral policy bias. Many expected the RBA to insert some hint of an easing bias into its latest policy Statement. But the RBA sounded somewhat chirpy, noting that “other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend”. Certainly, it didn’t feel that the RBA was on the verge of another rate cut.
The risk-on mood and spillover from a strong AUD has driven the NZD up 0.7% to 0.6975. It wouldn’t take much for the NZD to reclaim the 0.70 handle. Indeed, if the RBNZ’s tonetomorrow morning is firmer than the market expects, then that would do the trick. There is little technical resistance beyond the 0.7055 level. To help bring the NZD down the RBNZ would have to deliver a very dovish and credible message that a further series of rate cuts is possible. With one eye on the resurgent housing market, we’re not convinced that the Governor is prepared to deliver that message. We’d also note that the NZ TWI is higher since the last four rate cuts, so cutting rates doesn’t necessarily lead to a sustainably weaker currency.
GBP remains volatile as the polls ebb and flow between “Remain” and Leave” for the upcoming referendum. A couple of better polls has seen GBP regain prior losses and GBP/USD is at 1.4560, showing similar gains to the NZD so NZD/GBP is flat at just under the 0.48 mark.
There’s not much to say about the EUR and JPY, which have moved the least against the USD. EUR/USD is at 1.1360 and USD/JPY is at 107.30.
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