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All major currencies were up 0.3-0.4% against the USD, with NZD gaining 0.3% to trade at 0.7285 at last week's close; NZD largely flat against other majors but downside risk exists from speculative long positions being at highest levels in 4 years

Currencies
All major currencies were up 0.3-0.4% against the USD, with NZD gaining 0.3% to trade at 0.7285 at last week's close; NZD largely flat against other majors but downside risk exists from speculative long positions being at highest levels in 4 years

By Jason Wong

The low vol environment continued on Friday, with only modest changes in bonds, equities and currencies. The USD ended the week on a soft note for no particular reason.  Strong new home sales data were ignored.  Trump returned to the spotlight with his admission that he never taped his conversations with former FBI Director Comey. This was widely seen as another blow to his credibility as investigators continue with their probe into allegations of his obstruction of justice and associations with Russia.

All the major currencies increased by 0.3-0.4% against the USD, with the exceptions being the Yen (flat) and the weaker CAD following soft inflation data.  A soft Canada CPI result got the market re-thinking rate hike expectations.  One core inflation measure fell to its lowest rate in 18 years.  Before the result, OIS pricing suggested a better than even chance of a hike as soon as next month, but that expectation shifted forward three months to October.  USD/CAD ended the day up 0.25% to 1.3265.

EUR managed a 0.4% rise to just under 1.12, despite services PMI data undershooting expectations.  GBP was up 0.3% to 1.2720 on the anniversary of the Brexit referendum.

NZD gained 0.3% to close the week at 0.7285, after a couple of failed attempts to reach 0.73.  NZD crosses were fairly flat, although the softish yen meant that NZD/JPY managed to close the week just above 81.  For the week as a whole, the NZD was the best performing major, although gains were modest at roughly between 0.5-1.0% over a generally uneventful and low volatility week.

After the NZD’s strong run of late we expect a period of consolidation around the current level.  Another fairly uneventful calendar for the week ahead doesn’t inspire any alternative view.  The latest CFTC data show net speculative long NZD positions at their highest level in over four years, following a three-month period of mostly short-positioning. This suggests that “hot” money has been behind some of the NZD’s recent outperformance, making the currency more vulnerable to the downside than usual on any negative news.


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