Currency markets still coming to terms with the Trump world-view. Local strength from higher milk payout, rising confidence, higher retail means NZD gets hit less

By Jason Wong

The USD continued to grind higher on Friday, setting fresh milestones in the process.

There was little newsflow to drive markets – investors were still adjusting positions to reflect the new Trump world of potentially easier fiscal policy and tighter monetary policy.

The USD major currency TWI added another 0.3%, taking it to its highest level since early February and taking the cumulative gain since the US election to 3.2%.  Given their exposure to USD-denominated debt, emerging market currencies are seeing the most pressure and losses against the USD have been moderated to some extent by policy actions – direct intervention in the case of China, Indonesia and Malaysia, amongst others and Mexico’s central bank hiked rates late last week to help stem the losses of the Peso.

Losses for the NZD on Friday were smaller compared to others, amidst a trifecta of positive economic news – Fonterra raising its projected milk payout for the current season by 75 cents to $6 per kg/milk solids, the ANZ consumer confidence index rising to its highest level since April 2015, and real retail sales rising by 0.9% q/q in the September quarter, continuing their strong run.

The NZD ended Friday down “just” 0.2% to 0.7010, its lowest level in four months and almost losing the 70 handle in afternoon trading.  Without the support of domestic economic releases like NZ, the AUD fell by 0.9% to 0.7340, driving further gains in NZD/AUD to 0.9560.

The weekend media made much of the fact that EUR/USD fell for the tenth consecutive day, the longest losing streak since the euro was introduced in 1999 and taking the cumulative loss over those ten trading sessions to 4.9%.  On the day it fell by 0.4% to 1.0588, not helped by some dovish comments by ECB President Draghi in a keynote speech at a European Banking Conference.

JPY was one of the weakest currencies of the session, with USD/JPY climbing 0.7% to 110.90.  Speculative traders were caught on the wrong side of this trade ahead of the US election, driving the steady depreciation of the yen – it’s almost hard to believe it was trading as low as 101.30 during the counting of votes.

The day ahead should be a quiet one for currency markets, with no major economic releases over the next 24 hours.

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