By Kymberly Martin
The USD weakened overnight. Commodity-linked currencies were the strongest performers. Even the GBP managed a slight gain.
In the latest political surprise, UK Independence Party leader, Farage, resigned saying that now he has his “country back” “I want my life back”. Despite ongoing political turmoil and a disappointing UK construction PMI release, the GBP gained a boost in the early hours of this morning. This appeared to be helped by an announcement by the Chancellor of the Exchequer, Osborne. He said more money might be made available to banks for lending to companies and floated the idea of a lower corporate tax rate. The GBP/USD sits just below 1.3300 currently, having briefly spiked to 1.3340 in the early hours of this morning.
The EUR made its intra-night lows after the UK data disappointment and a poor reading on the Eurozone July Sentix investor confidence index. However, from evening lows below 1.1100 the EUR/USD has traded up to 1.1150. Conversely the USD index traded lower.
The NZD, AUD, CAD and NOK have traded higher since the start of the week, despite a drift lower in the WTI oil prices in the early hours of this morning. The AUD/USD opened lower, given the overhang of the undecided Federal election. However, the impact proved temporary. The AUD/USD began a steady ascent that continued overnight, up to its current level of 0.7540. Today, the focus for the AUD will be the RBA’s Statement (see Interest Rates).
The NZD/USD has also made steady gains. It now sits more than 0.7% above Friday’s close, at 0.7230. The pre-‘Brexit’ highs near 0.7300 are now in view. Yesterday, we again published revised forecasts for the NZD/USD. These still incorporate a lower NZD/USD into the latter part of the year but now target 0.66 at year-end from 0.63 previously. From a tactical perspective however, we would not be tempted to look for a more enduring decline in the currency until we revisit 0.7300.
The latest GDT dairy auction in the early hours of tomorrow morning has potential to impact the NZD. While there have been recent signs of stabilising forces, sentiment surrounding the ‘Brexit’ vote gives a negative tinge to our expectations for this auction’s price outcome.
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