By Kymberly Martin
Over the past 24-hours the USD has traded sideways. The GBP/USD and NZD/USD have been the strongest performers while the JPY has declined.
Overall global risk appetite remains fairly steady. Overnight, equity markets have generally provided modest positive returns on either side of the Atlantic. Our global risk appetite index (scale 0-100%) remains at a solid 63%.
In this backdrop the ‘safe haven’ JPY has again under-performed. Since the US elections, the diverging paths of US and Japanese monetary policy have increasingly been in focus.
Equally, US-JP 10-year yield spreads have widened from 180bps to 230bps. These broad themes appear to be driving the current weakening trend in the JPY as opposed to individual data developments.
Yesterday’s stronger than expected JP retail sales release passed virtually unnoticed. The USD/JPY has traded up from 111.90 early last evening to 112.60 currently.
At the other end of the spectrum, the GBP/USD has made a decent rebound. From 1.2400 it now trades at 1.2500. Still, in the broader scheme of things it continues to consolidate after suffering a series of declines over the past five months. Recall, prior to the UK ‘Brexit’ vote the GBP/USD traded close to 1.5000.
The NZD/USD has also been one of the stronger performers overnight. It now trades above 0.7120. While the 200-day average may provide support at the 0.7040 level, near-term resistance is likely to be encountered on any move toward 0.7200.
The NZD has outperformed on most of the crosses, notably versus the AUD. From 0.9450, the cross now trades at 0.9530. We continue to anticipate the cross will oscillate around the mid-90s in the months ahead. This suggests trading a range, rather than outright direction, may be the most fruitful tactic.
The meeting of OPEC member in Vienna will likely continue to steal headlines in the day ahead. Any failure to reach a deal would likely see further declines in the WTI price and potential pressure on commodity-linked currencies.
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