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NZD trading just above the 0.7200 USD mark; USDJPY down 1% as traders offload risk prior to key events on Thursday; AUD pushed through the 0.7500 USD mark but is 0.4% lower against the NZD

Currencies
NZD trading just above the 0.7200 USD mark; USDJPY down 1% as traders offload risk prior to key events on Thursday; AUD pushed through the 0.7500 USD mark but is 0.4% lower against the NZD

By Jason Wong

On a slow news day, markets have worked themselves into a bit of a tizzy, with fear over the outcome of the three key events scheduled for Thursday. This has seen global bond rates fall, demand for the safe-haven yen, and slightly softer equity markets. 

Thursday brings a trifecta of key risk events – the UK election, the ECB meeting with its first likely move away from its highly accommodative policy stance, and former FBI Director Comey’s testimony to the Senate intelligence committee.  Traders are keen to offload some risk ahead of these events and have adopted some defensive positions.  This has seen strong demand for the yen, with USD/JPY down nearly 1% to 109.40.  The S&P500 has spent the whole session in negative territory, although the current fall so far is a modest 0.1%, while the VIX hasn’t risen that much and sits around 10.4.

Most major currencies have risen against the USD, with the GBP a notable exception as opinion polls continue to whipsaw ahead of Thursday’s election.  There is some scepticism that the polls showing a close race are accurate, and this has helped the GBP “only” lose 0.1% to 1.2890.  The USD major currency index is down 0.3% to reach its lowest level since early November, having now more than fully unwound the boost seen after the Presidential election.

The NZD has outperformed, possibly a reflection of traders closing short positions. It breached the 0.72 mark, reaching as high as 0.7205 early this morning, and it currently sits just below that level.  The NZD continues the strong recovery seen since mid-May and further closes the gap with our short-term fair value estimate of around 0.75. The GDT dairy auction overnight was broadly in line with expectations, with the average winning price up 0.6% – the sixth consecutive positive auction – and whole milk powder prices falling 2.9%.

Alongside a soft USD, the AUD has pushed up through the 0.75 mark.  Australian GDP data released today could show a negative Q1 result, with yesterday’s weaker than expected net exports data adding to that risk.  The key line taken out of yesterday’s RBA statement was that the Bank would be looking through such a weak result, as the central bank still expects growth to head back up towards the 3% mark.  NZD/AUD is up 0.4% to 0.9570, but hasn’t fully recovered loss seen on the Queen’s Birthday holiday and thus remains below the 0.96 mark where it began the week.


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