by Kymberly Martin
NZD
It was a volatile night for the NZD. However the NZD/USD currently trades back at a familiar level, just above 0.8040. Yesterday, the NZD/USD traded within an unremarkable 0.8010-0.8040 range up until the announcement by the People’s Bank of China of unexpected rate cuts.
This saw the NZD spike above 0.8070, piggy-backing on the consequent surge in the AUD. The mood soon sobered as the ECB cut rates.
This was as expected, but it resulted in a general decline in risk appetite with President Draghi adding comments such as “economic growth continues to remain weak with heightened uncertainty weighing on confidence".
The NZD/USD fell back to trade around 0.8040 currently.The NZD made solid headway relative to its European peers however.
The NZD/EUR surged to new all-time highs, trading around 0.6490 currently. We continue to look for a NZD/EUR‘peak’ around 0.6500/0.6600.
The NZD/GBP also rose steadily from around 0.5140 last evening to trade at 0.5180 currently. This continues the ‘V’ shaped recovery the NZD has made relative to the GBP since late May.
The NZD/GBP now trades at the highest level since mid April, and is approaching key resistance around 0.5210. For today, expect the familiar 0.8000-0.8070 range to contain the NZD/USD, ahead of the key event risk this evening, US non-farm payrolls.
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Majors
The EUR fell heavily after the ECB cut rates. The NZD and AUD were relatively well-supported. As anticipated, the ECB followed up on last week’s EU summit with its contribution to EU growth, cutting interest rates.
While there had been some ambiguity as to how the EUR would respond to such a move, in the event the outcome was clear. The EUR/USD fell from above 1.2510 to find support around 1.2390, where it now trades.
The downward move was compounded by the release soon after of the US ADP employment report (176k vs. 100k expected).
As a precursor to tonight’s all important US payrolls report, it hints at less urgency for further quantitative easing from the Federal Reserve. The USD index surged form 82.20 to 82.80 on the releases.
By contrast, the Bank of England did not cut rates, but did undertake further quantitative easing, as expected. As a small chance of a rate cut had been priced by the market, the GBP/USD was spurred higher on the announcement.
This proved short-lived however as the GBP was then dragged lower on the coat-tails of the EUR.
The GBP/USD slipped form overnight highs above 1.5600 to trade around 1.5520 currently. The CHF and JPY both succumbed to the strength in the USD. The AUD and NZD however were fairly resilient.
The AUD/USD surged higher late last night after the Bank of China unexpectedly announced rate cuts. Having touched above 1.0320 it then fell back to earth after the ECB announcement dampened risk appetite (the Euro
Stoxx 50 closed down 1.20%).
It later clawed its way back to trade around 1.0300 currently. Tonight, the key focus for markets will be the US non-farm payrolls report (95k expected, up from 69k previously).
The market is in no mood to weather a disappointing result, though the strong outcome on yesterday’s ADP report lessens the risk of a negative shock.
Other news: US initial jobless claims; 385k vs. 374k expected. ISM non-manufacturing index; 52.1 vs. 53.0 expected.
Event Calendar:
6 July: NZ Crown Accounts; US non-farm payrolls; UK PPIs
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