USD breaks below the 200-day moving average and the DXY is down to its lowest level since November's election; despite positive dairy auction and USD weakness, NZD did not find upward momentum and traded a tight 40 pip range

By Doug Steel

Equity markets are little changed, while oil prices are marginally lower following yesterday’s jump higher. US long bond yields are down a couple of points. More movement was seen in foreign exchange markets.

USD weakness has extended. The USD has decisively broken below its 200-day moving average having been oscillating around it for the best part of the past month. The dollar was weaker across all the majors overnight, with the DXY dollar index down 0.8% to its lowest level since last November’s US election. USD/JPY is down 0.7%, close to 113.00.

Last week’s soft US CPI kicked off the recent bout of USD weakness and has extended amid allegations that Trump disclosed highly classified information about a planned Islamic State operation to Russia’s foreign minister in a recent meeting. Trump says that the meeting was successful. US data overnight wasn’t strong enough to stop the USD’s slide.

Stronger-than-expected US industrial production figures do support the Fed’s view that Q1 economic weakness is likely to be temporary, but doubts about whether the Fed will actually tighten in June linger (currently priced at around a 70% chance). US housing permits and starts data were softer than market expectations.

All this was in contrast to more positive developments in Europe, seeing the EUR/USD on a one-way street higher overnight. Political risk has faded post the French election and economic data continues to print strong. The EUR/USD was already in the ascendancy overnight before being bolstered by a bigger-than-expected trade surplus and a higher ZEW investor sentiment survey. EU Q1 GDP growth was as good as expected at 0.5% q/q and 1.7% y/y. It all adds fodder to those thinking that the ECB may begin altering its policy guidance language in June. German-US long term interest rate spreads narrowed, also offering support to the EUR. EUR/USD blasted up through 1.1000 and is currently near session highs around 1.1090, up 1.0% on the day.

There was some volatility in GBP around the slightly higher than expected UK CPI data overnight. Initially pushing higher toward 1.2960, GBP/USD then plunged to below 1.2870 as realisation of declining real incomes set in, but then the pair recovered (supported by a stronger EUR) to currently sit around 1.2920.

The still unloved NZD has been on the side lines overnight trading a relatively tight circa 40 pip range. Despite a decent dairy auction, with prices up 3.2%, and general USD weakness, the NZD could find no upward momentum. NZD/USD opens this morning at a familiar 0.6890. EUR strength sees NZD/EUR down 1.0%, at around 0.6210. There was no new news in yesterday’s RBA minutes, with no lasting impact on the AUD. The RBA is still watching the labour and housing markets carefully, which will keep market focus on today’s AU wage data and tomorrow’s employment figures. AUD/USD opens this morning around 0.7430 and NZD/AUD about 0.9270.

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