By Kymberly Martin
The USD has rebounded from evening lows.
The AUD has been the worst performer over the past 24-hours while other commodity-linked currencies have also been under pressure.
The AUD/USD gapped sharply lower yesterday afternoon after the RBA delivered a rate cut; an event only 50% priced by the market.
The RBA was likely aware that not to cut would have fuelled further upward momentum in the AUD. Eventually that could have posed a threat to the still robust non-mining recovery and better unemployment outcomes. That said, our NAB colleagues see the AU economic outlook as remaining relatively favourable.
The Bank repeated the view that their economy is making the necessary adjustments, but that an appreciating exchange rate could complicate these adjustments. This is a thinly-veiled warning that a higher exchange rate would not be desirable. This morning, the AUD/USD trades at 0.7490, 2.8% below pre-RBA levels.
The move, resulted in a gap higher in the NZD/AUD cross. It now trades at 0.9240, its highest level since early-March. However, the NZD/USD suffered. From 0.7050, it soon found itself at 0.6980. It made an attempt to claw its way back late last evening, before slumping to 0.6920 in the early hours of this morning. The soft GDT dairy auction in the early hours of this morning added to the downward momentum in the NZD. Average dairy prices declined 1.4% from the last event.
Other ‘commodity-linked’ currencies, such as the CAD and NOK were also under pressure overnight, as the WTI oil price fell along with broader commodity indices. The CRB global commodity index fell 1.6%.
The GBP was also a poor performer. Sentiment toward the GBP soured in the evening as the UK PMI fell below 50, for the first time (in the short series from 2013). This represents a sector in contraction. The GBP/USD declined from evening highs above 1.4750 to trade at 1.4550 currently.
This morning’s NZ employment report may be the proximate influence on the NZD/USD. Tonight, general sentiment toward the USD may be influenced by the release of the US ADP employment report.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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