A key theme over recent weeks has been a recovery in the USD and higher US Treasury rates from their lows for the year, supported by more conviction in further Fed monetary policy tightening and an increased chance of Trump getting a tax reform programme into law. There has been a pause in that trend for no obvious reason overnight. Month-end and quarter-end flows might be affecting markets, with not a great deal of news for the markets to grab on to.
Euro-area economic confidence, a combined measure of business and consumers, rose more than expected to a decade-high, while in the US a narrower US trade deficit was recorded and jobless claims continued to show the effects of the hurricanes. None of this data had much impact on the market.
Yesterday, the RBNZ’s OCR release passed as the non-event it was widely expected to be. There were only minor tweaks to the Statement and no changes to the key policy outlook statement of "monetary policy will remain accommodative for a considerable period", with the Bank not following the lead of the BoC or BoE. On the NZD, Acting Governor Spencer wisely stuck to the facts, noting the slight easing in the TWI and that a lower NZD "would help" to increase tradeables inflation – no indefensible value judgement there to argument with.
There was little market reaction to the announcement. The NZD slipped a touch from 0.7220 to 0.7200 before settling and reached a low of 0.7167 last night as the USD trended higher. A weaker path for the USD since then sees the NZD trading back up to around 0.7230.
The AUD is struggling against the backdrop of weaker iron ore prices. Iron ore prices have fallen for 9 of the past 11 days and are down over 20% for the month to date to below $63 on the Qingdao benchmark. This sees NZD/AUD back up through the 0.92 mark.
The NZD is flat on the other key crosses, as the other majors also made modest gains against the USD.
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