By Kymberly Martin
The USD strengthened against all its peers on Friday night after the release of US CPI data.
The GBP was the worst performer on the night, while the NZD/USD closed for the week around 0.7270.
Reasonably genteel trading in most currencies on Friday night was interrupted early Saturday morning after the release of US CPI data. This showed the annual pace of core CPI ticked up to 2.3%, a level it briefly touched in February, for the first time since April 2012. A large 1%m/m rise in medical costs made a notable contribution.
The release bumped up the USD index and US short-end yields. Still, we would be very surprised to see the inherently dovish Fed get ahead of the market with a rate cut this week. A December cut looks more likely.
The USD index closed at 96.00, around 0.8% above Friday evening levels.
All of its peers suffered as a consequence. However, the GBP also fell for its own reasons. Bloomberg headlines reported (citing two unnamed officials) that the UK Chancellor of the Exchequer, Philip Hammond, was ready to accept that Britain may have to give up membership of the European Union’s single market, to achieve the immigration restrictions that voters have demanded.
The GBP also suffered as EU President Donald Tusk hinted UK PM Theresa May will invoke Article 50 to commence EU exit procedures in January-February next year. The consequences of the ‘Brexit’ vote may soon become a lot more tangible.
The GBP/USD has traded down from 1.3230 on Friday evening to close for the week at 1.3000. The lower end of its trading range post-‘Brexit’ remains at 1.2800.
Along with its peers, the NZD/USD dropped in the early hours of Saturday morning, accentuating a more subtle declined through much of Friday evening.
The NZD/USD closed for the week just below 0.7270. For now, the uptrend that has been in place since early in the year remains intact.
However, there will be no shortage of events to test the currency as the BoJ, US Fed and RBNZ all meet later in the week. But, it may be a quieter start to the week with only low-key data due, including today’s NZ PSI and consumer confidence index.
The NZD/AUD traded lower into the close on Saturday morning. From evening highs above 0.9740 it ended the week at 0.9700. Resistance remains at last week’s highs approaching 0.9770. Support would likely be encountered on any pullback toward 0.9600.
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2 Comments
The composition of US inflation isn't exactly compelling. The main contributor was a cost-push from medical insurance. Where's the rampant consumer demand-pull inflation? The benign US trade deficit shows consumer discretionary isn't exactly setting the world on fire.
You are correct that the GBP has suffered a decline but in reality this benefits the UK as evidenced by its improved performance since the Brexit devaluation. German Banks - Deutche & Kommerzbank are almost certainly insolvents as are Italy, Spain, Portugal and Greece so the demise of the EU and Euro is probably when not if. This will likely make the Pound the safe haven currency of Europe and the US$ and Yen the safe have global currencies as China's Banking system, shadow Banks in particular implode or suffer major issues renders the BRICS as history. The more important question locally is the effect on NZ$, if I could figure this out I would not be sharing the solution for some time.
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