There’s been plenty of information flow and some decent price action across asset markets in the past 24 hours. At last, back to the good old days. For a change, the NZD has been out of the spotlight, seeing it more mixed on the crosses, against a backdrop of weaker global equity markets and higher global rates.
The NZD continues along its weaker trend, but price action has been more variable as other currencies hit the spotlight. The allocation of Ministerial portfolios for the new government didn’t throw up any surprises and just highlighted how the minor parties had significantly over-achieved in allocations relative to their vote. NZD/USD is down to around 0.6875, only about 10pips below the level signed off this time yesterday, against a backdrop of stronger US data on durable goods orders and home sales, the latter surging to a 10-year high. Trump’s public spats with Senators don’t provide much confidence that his tax reform package will see the light of day, holding back USD performance, while the market remains on edge as we await Trump’s selection for the next Fed Chair.
The NZD is up against the AUD and CAD to 0.8935 and 0.8805 respectively. Yesterday, Australian Q3 CPI data came in below market expectations, triggering a weaker AUD and lower rates, as enthusiasm for the RBA to join the tightening brigade waned. AUD is trading sub-0.77 this morning for the first time since July. The Bank of Canada held rates steady after back-to-back increases, as expected, and warned that it would remain “cautious” when considering future rate increases. Governor Poloz said that every meeting is a “live” meeting and called the Bank’s approach “fundamentally data dependent”. Market pricing now suggests that the odds are tipped for the next rate to come early next year, rather than December.
UK Q3 GDP growth was 0.1 percentage points higher than expected, but that was enough to cement in expectations that the BoE would hike rates next month, joining the growing set of central banks that have kicked off a tightening cycle. That was enough to push UK 10-year rates up 5bps to an 8-month high of 1.40% and lift GBP by nearly 1% to 1.3250. NZD/GBP has moved sub-0.52 for the first time since last year’s Brexit referendum (ignoring the GBP flash-crash in November).
EUR was supported by Germany’s IFO business confidence indicators reaching all-time highs and has also been bid up ahead of the ECB’s important meeting tonight. It is back up through 1.18 and this sees NZD/EUR down to 0.5820, a 20-month low. The market expects the ECB to announce its plans for a tapering of asset purchases from next year, halving current purchases from the current €60b per month pace and extending the program through to June-September 2018. With rates not to be increased until well after the end of the programme, the EUR will be sensitive to the end-point of programme.
JPY has ebbed and flowed alongside US Treasury yields. Higher European yields and the stronger durable goods orders data saw the US 10-year rate blast up to as high as 2.47%, before falling back down to the current 2.44%. With the key technical level of 2.40% now convincingly broken, the technicians will be eyeing up the YTD highs just above the 2.60% mark as the next area of resistance. USD/JPY rose to as high as 114.24 as US rates peaked, and has since settled around 113.70. NZD/JPY is down to 78.2.
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