In quiet, holiday-mode trading with little data there is little news to report and financial market movements have been modest, including for currencies.
The newswires seem obsessed with the prospect of the Dow Jones Index approaching the 20,000 mark. It traded within 13 points of that mark earlier this morning. More noteworthy is the resilience of equity markets and low volatility in the face of two horrific terrorist attacks in Europe yesterday. They seem to have had little impact on the market, even as the focus over the next year turns to the series of European elections in the year ahead. Europe's equivalent VIX index fell to its lowest level in more than two years while the VIX index itself is trading at the bottom of its 5-year range, under the 12 mark.
This risk-loving environment would normally be positive for the NZD, but the USD remains the currency of choice, and it has nudged higher against most of the majors, although we're talking only 0.1-0.2% on the various USD indices.
The NZD is trading around 0.6920 this morning, having traded as low as 0.6883 just after midnight. The latest GDT dairy auction was in line with expectations, with the overall price index down 0.5% and whole milk powder down 0.8%. There's nothing significant on the economic calendar to drive currency markets over the next 24 hours, so tight trading ranges should ensue.
The only currency movement of note is the weaker yen, seeing USD/JPY up 0.7% to 117.90. The weak yen followed the BoJ announcement, even though it was in line with expectations. The BoJ upgraded its assessment of the economy and kept policy settings unchanged, including targeting a 10-year rate around the 0% mark. Governor Kuroda said that he didn't see the prospect of the yen becoming a problem by weakening excessively. While USD/JPY is up 17% over the quarter to date, Kuroda noted that it was simply back to February's trading level. We see the Yen remaining closely linked to the movement in US Treasuries. Some consolidation of the US 10-year rate should see some consolidation in the yen over coming months.
The UK's PM May gave little detail on her Brexit plans in her testimony to Parliament, promising to give more details next year. She suggested that negotiations could be finished within 18 months, leading to a final deal by September 2018 and that the UK will be negotiating a “transitional period” for the UK after it has left the EU. The latter helps sooth fears of a “hard Brexit” come September 2018. Amidst the stronger USD theme, GBP is down to 1.2350, while EUR is trading sub-1.14.
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