BoJ to raise monthly bond purchases to ¥7 tln and announces highly ambitious goal for achieving inflation target

By Kymberly Martin

NZD

The NZD/USD had a fairly turbulent 24-hours, but trades slightly higher this morning at 0.8430.

In the absence of domestic data releases yesterday the NZD/USD drifted lower into the evening.

Overnight, it was tossed around by offshore sentiment. Early this morning it benefitted from a general souring in tone toward the USD, trading up to 0.8430.

The most notable move on the NZD crosses came relative to the JPY.  The Bank of Japan over-delivered on easing expectations sending the JPY tumbling. The NZD/JPY surged to new highs, sitting at 81.00 currently.

The NZD was weaker on the key European crosses, but strengthened relative to the AUD.

The NZD/AUD initially plunged early yesterday afternoon, after a strong AU February retail sales number (1.3%m/m vs. 0.3% expected).

However, the cross soon found its feet, gliding back up to trade around 0.8070 this morning.

Today, it is fairly quiet on the domestic front, except for the release of the Crown Financial Statements. These are not normally a key currency mover, but will be of interest in the run-up to the 16 May Budget.

They key to the NZD/USD in the coming 24-hours will be tonight’s delivery of US payroll data. A soft payrolls report could dampen demand for the USD, as the market sees the US Fed firmly entrenched in its easing stance.

This would likely be NZD/USD positive, although the NZD will likely also be shunned as a ‘risk sensitive’ currency.

For today, NZD/USD resistance remains at 0.8450. Near-term support is seen at 0.8370.

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Majors

It was all about the JPY over the past 24-hours. It weakened 3.2% relative to the USD after the BoJ meeting.

Markets remained a little subdued overnight, as our risk appetite index (scale 0-100%) slipped a little further to 71% (It peaked around 84% in mid-March).

The Euro Stoxx 50 declined a further 0.70%, seemingly underwhelmed by the message from ECB President Draghi early this morning. 

The EUR/USD initially slipped to 1.2750, before recovering later in the morning to trade around 1.2950.

The USD has traded a volatile path over the past 24-hours. Last evening it benefitted from JPY selling. The USD index rose as high as 83.40.

Later it was jostled around by weak initial jobless claims (385k vs. 353k expected), but passable consumer confidence data. The index has returned to trade around 82.70 this morning, similar levels to this time yesterday.

There was no ambiguity about the direction of the JPY however. After the Bank of Japan meeting last evening the USD/JPY gapped higher, continuing an upward path all night. The BoJ, under new Governor Kuroda, beat market easing expectations.

The BoJ intends to raise its monthly bond purchases to ¥7t vs. an estimate of ¥5.2t. It also intends to buy longer-dated bonds with maturity up to 40-years, helping to flatten the curve. It also announced a highly ambitious two year goal for achieving its new 2% inflation target.

The USD/JPY stepped up from around 93.00 ahead of the meeting, to 96.20 this morning. This is back at mid-March highs.

However, we still think a move to 100.00 or more will likely require fresh USD strength driven by better US fundamentals.

The GBP strengthened last night after the Bank of England left rates unchanged, and made no changes to its asset purchase program.

The GBP/USD rebounded from intra-night lows around 1.5050 to sit at 1.5250 this morning.

Tonight, Eurozone retails sales and German factory orders will be released. The ECB will also announce its 3-year LTRO repayments. However, eyes will mostly be on the US payrolls release.

All its research is available here.