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NZD strong across the board but constrained by USD strength; EURUSD down over 0.0250 ticks on ECB announcement; traders look to the FOMC announcement for tightening of monetary policy

Currencies
NZD strong across the board but constrained by USD strength; EURUSD down over 0.0250 ticks on ECB announcement; traders look to the FOMC announcement for tightening of monetary policy

By Doug Steel

It’s been quite a week for the NZ dollar, briefly below 0.7080 on Monday as news of Key’s resignation broke to yesterday’s flirt with 0.7220 influenced by commentary from Governor Wheeler and Treasury updates. Treasury’s update showed expectations for solid growth, firmer inflation and rising fiscal surpluses through to 2021. It highlighted how strong New Zealand’s fiscal position is particularly given it includes the financing of a further earthquake recovery; rating agencies will be nothing but impressed.

Across the board the NZ dollar is higher this week, its outperformance on cross rates has been a feature. The NZD/AUD has poked above 0.9600, reflecting the contrast in outlook between the RBA (post this week’s policy update and a soft GDP outcome) and our own RBNZ (Wheeler modestly hawkish in his speech reported yesterday). The NZD/AUD sits around 0.9625 this morning.

NZD/EUR this morning is north of 0.6750, a level last seen in May of 2015, and seemingly poised for further gains as the ECB extends accommodative policy settings and continues to battle underwhelming European performance and financial management.

The GBP/USD currently sits around 1.2590, down from about 1.2680 before the ECB decision. NZD/GBP trades near 0.5700.

Overnight the USD is somewhat firmer across the board, its performance against the EUR most telling for markets as traders respond to the ECB’s policy update. The contrast with the Federal Reserve again telling, with Yellen set to tighten monetary settings next week for the first time in 2016. The EUR fell from trading near 1.0875 to the 1.0600 level earlier this morning. USD/JPY trades at 114.15. It is USD strength that has the NZ dollar open around 0.7170 this morning and likely to now contain the currency inside a 0.7125/0.7200 range to see out the week.

ECB action added to the prevailing positive mood already prevailing in equity markets, with gains on either side of the Atlantic. Euro Stoxx 50 closed up 1.4% on the day. The S&P500 continues to push record highs, up around 0.3% on the day, at the time of writing. Yesterday’s Chinese trade figures adding to positive sentiment as they implied rising activity.

There is little on the local data calendar today that is likely to provide market excitement, although China’s CPI and PPI will be monitored for further signs of inflation lifting. Looking into next week, Thursday morning’s FOMC is the feature event, trader’s money is on a tightening of policy, but it is the detail of the committee’s commentary where all focus will be.

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