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Murder of pro-EU MP Jo Cox helps firm Bremain sentiment; NZD could strengthen further if Brexit fears moderate

Currencies
Murder of pro-EU MP Jo Cox helps firm Bremain sentiment; NZD could strengthen further if Brexit fears moderate

By Jason Wong

The USD weakened on Friday and GBP continued its recovery in a quiet end to the week.

There was little economic news to drive markets on Friday. The S&P 500 closed down 0.3%, reversing the previous day’s gains, for a cumulative 1.2% fall for the week. The Euro Stoxx 600 index was up a strong 1.4%, but still managed a 2.1% fall for the week.

GBP continued to recover from its lows reached late last week.  It was the strongest currency on Friday, with GBP/USD up 1.1% to 1.4358.  Sentiment for “Remain” has improved since the murder of pro-EU MP Jo Cox. The first opinion poll conducted since that tragedy for the “Mail on Sunday” showed the Remain camp in the lead by 45% to 42%. The Survation telephone poll previously had the Leave camp in front. Betting odds show 74% for “Remain”, up from a low of 61% on Thursday.

The other currency theme on Friday was a soft USD, down about 0.4% on various baskets. Traders were likely still adjusting their positions post the FOMC announcement, which confirmed a lack of urgency for the Fed to hike rates this year.

NZD closed the week a pip under 0.7050, flat for the day compared to modest gains for other commodity currencies. The NZD’s rally post the RBNZ’s Statement just over a week ago stalled as Brexit risks increased. The year’s high of just under 0.7150 could be threatened if Brexit risks moderate. If Friday’s vote shows that the UK will remain in the EU, then expect a relief rally.

NZD/AUD at 0.96 has proved to be an area of resistance and that remained the case towards the end of last week.  It closed the week about half a cent below that level, with AUD/USD just under the 0.74 mark.

In currency markets this week, the focus will be on the UK referendum, with polls closing Friday morning NZ time. Trading could be choppy if the polls leading up to the referendum shift around.  Traders are likely to close down risk positions as the event nears, as it remains too close to call and liquidity could well dry up.


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