European currencies key casualties of USD strength; global equities tread water

By Kymberly Martin


The NZD has consolidated around the 0.8260 level overnight.

Heading into today’s RBNZ meeting the NZD/USD has consolidated further around the 0.8260 level. We (and the market) expect no change in the target rate today.

However, the discussion of the current balance of domestic risks will gain most attention.

The NZD was fairly range-bound on most of the crosses overnight. However, the NZD made gains relative to a weak EUR (see Majors). This morning the NZD/EUR sits around 0.6370.

There will be plenty to impact on the NZD/AUD cross today. As well as this morning’s RBNZ meeting, this afternoon’s (1.30pm NZT) AU employment data will be crucial for influencing views of respective interest rate paths.

For now, the market prices around 22bps of rate cuts from the RBA, and 17bps of rate hikes from the RBNZ in the year ahead. We see the probability of more hikes from the RBNZ, and more cuts from the RBA than are currently priced.

This should ultimately see the RBNZ cash rate above the RBA’s in 2014, helping to underpin our medium-term constructive view on the NZD/AUD. For now, key support for the NZD/AUD is eyed at 0.7980.


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The USD outperformed overnight on the back of strong US February retail sales data.

Overnight, global equity market continued to tread water. Our risk appetite index (scale 0-100%) continues to cling on at a fairly elevated 81% level.

The key for currency markets however was the release of better-than-expected US retail sales data.

February advance retail sales grew 1.1% (0.5% expected). This showed US households to be remarkably resilient to the burden of increased taxation and higher oil prices this year.

The USD index initially popped from 82.60 to 82.80, later breaking through this level to trade at 82.90 this morning.

European currencies were the key casualties of USD strength. Sentiment toward the EUR was also not helped by a fairly lacklustre Italian bond auction.

In addition, January Eurozone industrial production data showed a 0.4%m/m decline (-0.1% expected).

This suggests that despite improving financial market sentiment the region may remain in recession in Q1. The EUR/USD fell from overnight highs of 1.3060 to sit around 1.2960 currently.

The GBP/USD appears to be attempting to find support following its inelegant fall since the start of the year. The GBP/USD traded between 1.4920 and 1.4980 overnight, still close to its lowest levels since mid-2010.

The AUD/USD consolidated around the 1.0310 level overnight. The key for the AUD today will be AU employment data.

The AU unemployment rate is widely expected to rise to 5.5% from 5.4% previously. Looking ahead, our NAB colleagues expect the upward trend in the unemployment rate to continue, rising to around 6.0% in 2014.

This is a component of their view that further RBA rate cuts will be required. Probabilities are tilted toward more cuts than the 22bps currently priced by the market.

Tonight, the ECB issues its monthly report and US current account data is released.

Event Calendar:

14 March NZ RBNZ MPS; AU Employment; ECB Monthly Report; US Jobless claims,

16 March NZ: PMI.

All its research is available here.

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