By Kymberly Martin
NZD
The NZD was the weakest performer amongst its peers over the past 24-hours, falling 1.30% relative to the USD.
The NZD/USD started on its downward path yesterday afternoon after recorded comments from RBNZ Governor Wheeler focused on the currency, as we anticipated.
He referred to the NZD as ‘overvalued’ but emphasised there was no simple solution available to the RBNZ.
In fact, many of his comments discussed what measures would be unlikely to work in trying to reign in the strong NZD. Still, the market appeared to latch onto such words as ‘intervention’, and use it as an excuse to knock the NZD lower.
The weaker trend was then maintained overnight as broad risk appetite came off the boil (see Majors). Our risk appetite index (scale 0-100%) fell from 84% to 82%.
The NZD sits at 0.8360 this morning, down from 0.8460 prior to the Governor’s comments. The NZD/USD is still well within the ranges it has traded for the past couple of months. Near-term support is now seen around 0.8300.
The NZD was also broadly weaker on the major crosses. It was a helter-skelter 24-hours for the NZD/GBP.
While it initially plummeted yesterday afternoon, it was then spurred higher overnight after the release of dovish BoE minutes (see Majors). The NZD/GBP now sits a little lower than yesterday morning at 0.5470.
The NZD/AUD has pulled back a little further from last week’s 2 ½ year highs, to sit around 0.8140 this morning. Today, ANZ NZ job ads will be delivered, though are unlikely to be market moving.
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Majors
The USD index was broadly stronger yesterday. The AUD, GBP and NZD were the weakest performers.
Some of the recent apparent complacency in markets was knocked overnight. The VIX index (a proxy for risk aversion) rose from six-year lows around 12 up to 13.15.
The Euro Stoxx 50 fell 0.80% and the S&P500 is down 0.50%. It was difficult to pin-point a precise catalyst aside from the creeping realisation that political risk is rising in both Europe and the US.
Most imminent is Italy’s election this weekend.
The USD was stronger against all its counterparts. It strengthened ahead of the release of US Fed minutes early this morning. It also benefitted from idiosyncratic weakness to currencies such as the NZD and GBP.
The GBP weakened after the release of Bank of England minutes. The minutes showed the Committee was leaning toward greater monetary stimulus.
The Committee voted 6-3 (previously 8-1) to maintain the Bank Rate at 0.50% and asset purchases at £375b, at the last meeting.
Dissenters, including Governor King, recommended a further £25b of stimulus. The UK inflation rate remains well above target, and is likely to for the foreseeable future.
This suggests the Bank is moving toward the soon-to-be Governor Carney’s policy of ‘flexible inflation targeting’. Yesterday, the UK unemployment rate was also shown ticking up to 7.8% from 7.7% previously.
The GBP/USD gapped lower from around 1.5450 before finding support at the crucial 1.5290 level. This has marked the bottom of the range for the GBP/USD on numerous occasions since mid-2010. A break below this level would open the way to much deeper falls.
The AUD drifted lower overnight along with the NZD, as general sentiment was a little softer. It has downshifted from 1.0360 to sit around 1.0270 currently. Key support is now seen at 1.0230.
Today, RBA foreign exchange transactions data are released. Aside from that it is a fairly quiet day locally, so the currency may be directed by broad risk appetite. Tonight, European PMI data for February is released.
There are also a slew of US data releases with CPI, existing home sales and the Philadelphia Fed survey.
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