by Kymberly Martin
NZD
The NZD was the weakest performing currency over the past 24-hours, falling to trade just below 80.00 currently.
Yesterday’s HLFS showed the Q1 unemployment rate jump to 6.7%, from (a revised) 6.4%. It occurred because participation in the labour market jumped by more than employment. The participation rate leapt to 68.8%, from 68.2%.
Granted, employment growth was tilted toward part-timers rather than full-timers. Still, overall numbers expanded 0.4% in the March quarter, to be 0.9% up on a year ago. From the perspective of jobs, and participation, therefore, today’s HLFS was actually quite robust.
However, the NZD/USD gapped lower in knee-jerk response. Later the currency recovered a little bit, but was on a steady downward path overnight in the backdrop of muted global risk appetite.
The NZD/USD has broken key support levels, falling out of its tight range since the start of March. At just below 0.8000 it now sits at the lowest level since mid January. The weakness in the currency is consistent with the current sharp falls in NZ interest rates.
The weakness in the NZD was widespread on the crosses. Relative to its key European peers the NZD is now trading at the lowest levels since late December/ early January. The NZD/GBP slipped to 0.4940, and the NZD/EUR to 0.6080.
The NZD’s prospects were no better relative to its cross-Tasman peer. The NZD/AUD slipped to trade just below 0.7800 currently.
In recent days expectations for rate cuts have been more aggressively priced on both sides of the Tasman. To this end, today’s RBA release of its Monetary Policy Statement will be important. It will shed some further light on its recent 50bps rate cut decision, and have implications for policy going forward.
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Majors
Despite being whipped around by the ECB announcement, the EUR and USD remain little changed from 24-hours ago. The weakest performers over this period were the AUD and NZD.
The EUR/USD drifted a little lower ahead of the ECB announcement last night. The ECB kept rates on hold at 1.0% as widely expected.
Initially the EUR/USD fell below 1.3100 after taking out stops. It soon surged higher again as ECB President Draghi’s comments on the economy were taken as less downbeat than expected. However, as always he did not rule out any further action if downside risks come to the fore. The EUR/USD rose back to 1.3180 before settling to trade just below 1.3150 currently.
The USD index traded a similar pattern in reverse, spiking above 79.40 before dropping back to 79.10. The release of a weaker-than-expected US non-manufacturing ISM on the index for a while early this morning. It later clawed its way back to trade just above 79.20 at present.
The AUD/USD continued its descent of the past few days. Whilst the wind was taken out of the currency with the ‘surprise’ 50bps rate cut from the RBA earlier in the week, subdued risk appetite has also weighed on the currency. Our risk appetite indicator (scale 0-100%) has slipped to 61%.
The Euro Stoxx 50 failed to make gains overnight and the S&P500 is currently down 0.70%. Consequently, the AUD/USD slipped from above 1.0300 to 1.0260 currently. Overnight, it bounced off key support at 1.0240. This may be tested again today, and a break would portend further downside.
Today’s release of the RBA’s monetary policy statement will be the key influence on the currency today.
Tonight, the closely watched US non-farm payrolls will be released, along with an update on the US unemployment rate. Eurozone PMI services data will also be released.
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1 Comments
If you were interested in the current account deficit, and exports, and import substitution, the drop in $NZ has to be a good thing. Even if employment has gone up, if unemployment has gone up, then spare capacity in the economy is higher than previously imagined. That should lead to lower interest rates; and the lower dollar presumably. If the Reserve Bank has played some sort of role in bringing the dollar down, then well done. If its an accident, then don't get in the way.
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