By Kymberly Martin
NZD
The NZD/USD has traded between 0.7780 and 0.7880 over the past 24-hours sitting at the lower end of this range currently.
Overnight, as the market awaited this morning’s release of US FOMC Minutes, most currencies were on an uptrend relative to the USD. The NZD/USD was notable in that it actually drifted slightly lower into the release.
The Minutes provided some mixed messages resulting in market volatility thereafter. The NZD/USD spiked from 0.7800 to 0.7860 and back again within a very short period.
The NZD/USD now sits at 0.7790 as markets await a scheduled speech from Fed Chairman Bernanke (8.10am NZT).
The more enduring response from currencies may come after this address. The subject of the speech ostensibly relates to the first 100 years of the Fed.
Bernanke may shun markets and stick firmly to the historic script. But he may do his best to reiterate that in the Fed’s current policy, a move toward ‘tapering’ is still a long way short of ‘tightening’ through raising interest rates.
The NZD was also weaker on most crosses overnight. It dipped from its recent run higher against the EUR and GBP. The NZD/EUR declined from close to 0.6160 to sit around 0.6040 this morning.
After Bernanke’s speech the NZ PMI will be released this morning. We would be surprised if it pushed onto even higher levels after last month’s heady release (59.2), but a solid expansionary reading is likely.
The NZD/USD remains trading within the range that has contained it for the past month. The topside of this range is defined around 0.7880, and the lower-end at 0.7680.
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Majors
Ahead of this morning’s release of the US FOMC Minutes the USD index traded downward, a move that was then exacerbated by the release.
Markets were fairly subdued ahead of Fed Minutes early this morning. European equity markets closed down modestly (Euro Stoxx -0.17%) and bond yields traded tight ranges.
The release of the Minutes showed many FOMC members wanted to see further labour market improvement before it would be appropriate to slow the pace of asset purchases. Nevertheless “about half” of participants thought it would be appropriate to end asset purchases late this year. That is earlier than the mid-2014 previously indicated by Chairman Bernanke.
However, offsetting this, many participants also indicated they were worried about low inflation levels. The mixed messages in the Minutes resulted in market volatility in their immediate aftermath.
The USD index declined against most of its key peers ahead of the Minutes. It then fell sharply on the release. From above 84.60 at the start of the evening the USD fell as low as 83.70.
As the market has further digested the Minutes the USD index has returned to trade above 84.00. However, the market now awaits a scheduled speech from Chairman Bernanke (8.10am NZT) which may elicit the more enduring response from markets.
The GBP and EUR moved gradually higher against the USD overnight. On the release of the FOMC Minutes both spiked higher but have subsequently given up much of the gain.
From around 1.2770 last evening the EUR/USD now trades around 1.2880, having spiked as high as 1.2950.
The JPY was not immune from this trading pattern. The USD/JPY drifted lower overnight, plunging as low as 99.60 immediately post the Fed Minutes. It now sits around 100.20.
The underperformance of the AUD and NZD relative to their peers was notable overnight. Although they managed to hold their own against the USD they did not appreciate along with many of their peers. This was despite a fairly stable backdrop for risk appetite.
The AUD/USD trades around 0.9120 this morning having briefly spiked higher in the wake of the Fed Minutes.
Today, the AU employment report will be released with significant potential to impact on RBA rate cut expectations. The unemployment rate is expected to shift up from 5.5% to 5.6%.
Our NAB colleagues expect it to continue to trend higher, rising above 6% by year-end. A weak report could increase market odds of a rate cut at the next RBA meeting (currently priced at 60%), undermining the AUD. We expect a cut at this meeting.
Today, the Bank of Japan will issue its target rate and monetary policy statement. No change of rate, but a commitment to extended accommodative policy, is expected. As with European Central Banks the BoJ will likely want to distance itself from the US Fed’s move toward reigning in accommodation. This could extend JPY weakness.
Event Calendar:
11 July: NZ PMI; NZ food prices; AU employment; JN BoJ; US jobless claims;
12 July: US Michigan consumer confidence; Fed’s Plosser & Bullard speak
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