Markets digested comments from the Riksbank, the ECB, BoC, and RBA over the past 24 hours; NZDUSD changed little from yesterday, still trading just under the 0.7300 level

By Doug Steel

Markets were relatively quiet overnight, as the US observed its Independence Day holiday. There was a hint of risk off following yesterday’s North Korean missile test (its 11th of the year, but its first inter-continental). Asian equity markets dipped. Euro Stoxx 50 closed down 0.35% overnight. JPY initially strengthened before settling back. USD/JPY opens this morning down 0.1%, around 113.20.

But it was central bank guidance that was again the main driving force of what currency movement there was overnight, with comments from the Riksbank, the ECB, BoC, and RBA over the past 24 hours.

Bank of Canada governor Stephen Poloz reiterated hawkish comments suggested inflation should be ‘well into an uptrend’ in the first half of 2018. Another hint that policy tightening is not far away. The BoC meets next week. In US holiday thinned liquidity, the comments were enough to send the CAD to the top of the leaderboard, with USD/CAD down 0.6% on the day settling around 1.2940.

Other central bank comments were not so aggressive. Sweden is the latest central bank to join the wave of central banks becoming less dovish, as it held its policy rate at -0.5%. But Riksbank Governor Stefan Ingves made it clear that there is no urgency for tightening saying ‘most likely we’ll stay put until next [northern hemisphere] summer and then start raising the policy rate slowly.’ Importantly, while lowering the chances of further easing near term, the Riksbank did not rule out easing altogether. SEK fell on the news, currently down around 0.5% against the USD.

The ECB’s Executive Board Member Peter Praet in a speech in Rome argued the euro area’s economic environment is improving. But he also noted the need for patience and persistence in ECB policy as underlying inflation remains muted. So nothing to fan the fire started by Draghi last week. EUR/USD traded a tight range overnight and sits this morning down 0.1% at around 1.1350.

All this followed the RBA’s decision late yesterday afternoon to hold its cash rate at 1.50%, as unanimously expected. The RBA didn’t follow the seemingly coordinated change in guidance from other global central banks over the past week or so, very much sticking to its previous script. An unchanged final paragraph implies the RBA expected to keep rates on hold for some time. This saw the AUD head sharply south and to the bottom of the currency leaderboard. From around 0.7680 pre-announcement (with limited reaction to strong retail sales earlier in the day), AUD/USD dipped under 0.7600 at one point before settling around 0.7610. NZD/AUD popped higher post RBA and has ground higher overnight, up 0.7% on the day to currently sit around 0.9590.

NZD/USD is little changed from this time yesterday sitting just under 0.7300, after taking a smattering of data in its stride. Yesterday’s Q2 Quarterly Survey of Business Opinion (QSBO) that was about as (very) robust as it was in Q1. This morning’s QV house price data saw some further cooling in house price inflation. There was a slight 0.4% dip in overall GDT dairy auction prices, despite wholemilk powder prices rising 2.6%. No surprises in any of that. There seems little on today’s calendar to see the NZD venture out of its recent 0.7260 to 0.7350 range.

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