Generally quiet trading conditions prevailed overnight with data ahead of the FOMC minutes that were released at 6am this morning. Not much changed post the minutes. Equities are little changed on the day, US bond yields are marginally lower and the US dollar is marginally higher.
The only major move of note overnight was in oil, with prices slumping on talk that Russia was said to oppose any proposal to deepen OPEC-led production cuts. Brent crude slumped nearly 4% to dip back below $US48/bbl having pushed up toward $US50/bbl over recent days as part of recovering half its losses from a heavy sell-off in June.
No surprise then to see commodity currencies at the bottom of the currency leader board during the night. NOK was hardest hit, down 0.6% against the USD, while CAD is 0.3% lower.
NZD and AUD also came under some selling pressure as oil fell. NZD tested the bottom of its recent range, dipping under 0.7260 at one point before bouncing as oil stabilised. As the USD pared mild post-Fed-minutes gains, NZD has recovered to open this morning close to flat at around 0.7290. More broadly, commodity prices have been a support to the NZD highlighted by the 2.1% gain in the June ANZ commodity price index released yesterday. This adds to our view that NZ’s terms of trade will hit a record high in 2017; it is a fundamental positive for the NZD.
NZD/AUD currently sits at 0.9590 little different from yesterday at this time. The AUD could see some knee-jerk downward pressure today, if Australia’s monthly trade balance undershoots market expectations of a large surplus like our NAB colleagues thinks it will.
North Korea’s recent intercontinental missile test was called a ‘new escalation of the threat’ by US Secretary of State Rex Tillerson. North Korean leader Kim Jung Un aims to test this year a missile that is capable of hitting the US mainland. This saw some demand for the safe-haven JPY yesterday. USD/JPY dipped down toward 112.80 at one point. Through some oil and Fed related volatility USD/JPY opens this morning around 113.20, little changed on the day.
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