NZD closed the week at 0.7020 USD and is expected to trade in tight ranges until the RBNZ OCR review, which is not expected to have any surprises; AUDUSD back up to 0.77 and NZDAUD just above 0.91

By Jason Wong

It was a very quiet end to a busy week, with modest changes in currencies, flat equity markets and UST yields drifting lower.

In economic news, US industrial production in February was depressed by warm weather, while manufacturing production showed further signs of recovery.  US consumer sentiment remained buoyant.  The only interesting snippet of the survey was a drop in long-run US inflation expectations to a new low of 2.2%, after averaging 2.5% last year.  Despite the Fed being focused on inflation, the market didn’t seem perturbed by the release.  If any of the key Fed officials reference that figure it might attract more attention.

The G20 meeting of Finance Ministers and central bankers ended in the weekend with the communique dropping the previous commitment to “resist all forms of protectionism” at the behest of the US.  This was not unexpected in light of Trump’s “America First” policy, but everyone is none the wiser about what this means in practice, with Treasury Secretary Mnuchin providing little colour.

After being battered in recent weeks, the NZD showed further signs of consolidation on Friday, rising modestly against most of the majors and regaining the USD 0.70 handle, closing the week around 0.7020.  We think that the selling pressure since late-February was somewhat overdone.  In what is looking to be a quiet week ahead on the global economic calendar, the focus for the market will turn to Thursday’s RBNZ OCR review.  That event itself is unlikely to see much change in the RBNZ’s policy tone, but until then tight ranges could well prevail anyway.  We see the balance of risk tilted towards the NZD making up a little more ground over coming trading sessions.

NZD/AUD closed the week just above the 0.91 mark even as AUD/USD regained the 0.77 handle.  The underperformance of the NZD against the AUD over recent weeks has been brutal and not really justified in our view, so we wouldn’t be surprised to see the NZD/AUD cross recover a little from here.

On Friday, the yen was the best performing of the majors, supported by the fall in US Treasury yields.  That saw USD/JPY break down through 113 and closing the week at 112.70.

GBP weakened after a report came through that the EU will refuse to discuss offering the UK any post-Brexit deal before reaching agreement on its existing financial obligations to the EU.  We don’t see that as news, as officials have previously indicated such a stance.  The currency recovered in the context of a softer USD and closed the week close to 1.24.  It does highlight that negotiations are going to get messy and will likely drag on for a long time.

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