Currency moves have been modest, apart from strength in GBP, after a series of GBP-positive events.
The USD remains on the soft side and NZD has pushed up to a 5-week high.
Familiar trends are at play, although the extent of moves has been smaller. Equities continue their weak run ahead of the US Presidential election and amidst the US earnings season; the VIX index is higher, reaching 21 this morning, its highest level since the UK referendum in late June; and the USD is a little softer. Two polls by the NY Times and ABC News showed Clinton leading Trump by at least two percentage points, but that doesn’t appear to have significantly improved market sentiment.
Oil prices continue to track lower. Yesterday we reported on the much larger than expected rise in US crude oil inventories – a record increase. Overnight, a Bloomberg survey showed OPEC crude oil production rising to an all-time high. Doubts continue about the ability to reach a production agreement at the end of November. Brent crude is at USD46.20, down around 14% from the high reached a month ago.
GBP received a triple whammy of good news overnight. First up, the services PMI came in better than expected, continuing the run of positive economic surprises post the referendum. Next up, UK’s High Court ruled that PM May needs a vote from Parliament to trigger Article 50 that begins the process of leaving the EU. The decision is appealed, with a hearing in the Supreme Court scheduled for early December. While another layer of uncertainty has been added to the Brexit process, it adds to the chance of delays in Britain leaving the EU and a possible move away from a “hard” Brexit. Finally, the Bank of England delivered a hawkish surprise by moving to a neutral bias and a “limited” tolerance for above-target inflation.
GBP is up 1.2% to 1.2460, after earlier almost reaching the 1.25 handle. After reaching almost 0.5950 yesterday morning – its highest level in decades ignoring last month’s flash-crash in GBP – NZD/GBP sits at 0.5850 this morning.
Elsewhere, currency movements have been modest. NZD continues to push on higher, a reflection of the softer USD trend and sits at 0.7325 this morning. AUD continues to meet resistance just under the 0.77 mark. JPY is back to around 103, after getting down to 102.55 yesterday, while EUR and CAD are flat against the USD.
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