NZD rose to 0.7040 USD after the Fed announcement yesterday but has since fallen to 0.6975 after weak GDP data; AUD lower against the USD after weak employment data, but given NZD weakness, has strengthened against the NZD

By Jason Wong

There has been a lot of newsflow to digest over the past day or so.  The falls in the USD and UST yields and rise in US equities immediately after the Fed’s rate hike yesterday have been largely sustained.  Soft data releases have seen the NZD and AUD underperform, while GBP heads the leaderboard after the Bank of England monetary policy meeting.

After we hit the “send” button yesterday, there was no dialling up of hawkish rhetoric during Chair Yellen’s press conference.  The Fed remains on a gradual hiking path and feels that it has inflation well under control.  Since the initial fall in the USD post-Fed, the USD major currency TWI has largely tracked sideways.

As for the NZD, after blasting up through USD 0.70 immediately after the Fed statement, it pushed on higher and settled around 0.7040 before NZ GDP figures for the December quarter came in weaker than market expectations, as we feared, taking the NZD back down to around 0.70.  That loss was soon recovered, before selling pressure re-emerged and the currency has fallen to 0.6975 this morning.

Australia’s employment report was weaker than expected, showing a fall in jobs and an unemployment rate higher than expected.  This has seen the AUD give up some of its post-Fed gains and AUD/USD sits around 0.7670.  Nevertheless, the NZD has underperformed, which saw NZD/AUD reach a fresh low of 0.9074 and it trades close to the 0.91 mark this morning.

The People’s Bank of China followed the Fed’s move with a 10bps increase in some borrowing rates, but the market took that in its stride, seeing the move as reasonable.  To take control of its currency, the PBoC has to be mindful of rate changes at other central banks, particularly the Fed.

GBP got a boost overnight after the Bank of England left policy unchanged but one MPC member, Forbes (who leaves the Bank in a few months), supported a 25bp rate increase, and some of those in the majority said it wouldn’t take much more strength in inflation or growth for them to also shift their view.  GBP/USD increased about 100pips post the announcement to 1.2360.  In the battle for the worst performing major currency this year, GBP still takes line honours but the NZD is close by.  NZD/GBP is down to 0.5645, only a little above where it began the year.

EUR/USD made further gains yesterday as the Dutch election results were rolling in.  The result of the election was a pleasant surprise, with voters rejecting populism and tending to side with pro-Europe parties.  The anti-Islam Freedom Party of Geert Wilders ended up taking only about 13% of the vote, well down from polling of 30% earlier in the year. EUR trades at 1.0715 this morning and NZD/EUR around 0.65.

The BoJ’s on-hold policy announcement came and went without any fanfare.  The BoJ is still looking to target a 0% 10-year JGB yield and meeting its inflation target remains a distant prospect.  The NZD’s underperformance sees NZD/JPY trade around 79 this morning.

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