The ongoing concerns about a reduction in US monetary stimulus continued to weigh on markets on Friday after strong US PMI data.
The purchasing manager index, one of the most up-to date economic readings, reported the manufacturing sector at 61.5, while the services sector was at 70.1, well above the 64.3 forecast and the highest reading in the measure’s history.
The PMI is measured out of 100 with anything above 50 signalling economic expansion.
US growth expectations continue to be the dominant theme in FX markets.
Taper “bogeyman”
The NZ was pressed lower mid-week after the US Federal Reserve spooked markets with the return of one of the most feared of investment bogeymen: the “taper”.
The Fed minutes from their 2 April meeting indicated that “a number of participants” had indicated that an improving economy might mean the Fed needs to discuss winding back bond purchases at some point in the future.
The note, which confirms that a tapering process to lower regular bond buying is on the agenda, spooked markets, boosting the US dollar.
Chasing growth
In 2021 FX markets have turned traditional, with a single-mined focus on growth.
The end of 2020 saw a large re-rating in Asia with the New Zealand and Australian dollars, and Chinese yuan, outperforming.
Asian FX went off the boil, however, in early 2021, with the global focus on the quick vaccine roll-out and growth re-ratings in the UK and US.
This quarter, the focus has moved to Europe.
As a result, the NZD’s largest losses in this quarter have been in Europe with the NZDEUR falling to four-month lows.
NZ in focus
The early focus is on New Zealand retail sales.
NZ retail sales are due at 10:45am with the market looking for a 1.8% fall.
Later in the week, the Reserve Bank of New Zealand is due, with sluggish NZ growth contrasting with super-charged US numbers.
By Steven Dooley, APAC Currency Strategist – Western Union Business Solutions. You can contact him here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.