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A combination of US$ weakness and a more assertive tone in the OCR announcement has NZ$ surging ahead

Currencies
A combination of US$ weakness and a more assertive tone in the OCR announcement has NZ$ surging ahead

by Kymberly Martin

The NZD has performed head and shoulders above its peers over the past 24-hours. The NZD/USD sits around 0.8090 this morning.

Strength in the NZD initially followed yesterday’s RBNZ meeting. It was then compounded by a weak USD overnight. The slightly more assertive tone in yesterday’s OCR review, appeared to take the market a little by surprise.

As the market increased its expectations for OCR hikes in the year ahead, NZ yields pushed higher across the curve. Supported by increased rate differentials the NZD/USD pushed higher.

The NZ-US 3-year swap differential has pushed up to 287bps, its highest level since September 2011.

Upward momentum in the NZD/USD was then exacerbated by a broadly weaker USD overnight. The NZD/USD has strengthened almost 2% over the past 24-hours to sit at 0.8090 currently. This returns the NZD/USD to levels it was trading in mid-June.

The NZD was also stronger on all crosses, most notably against its European peers. The NZD/EUR and NZD/GBP sit at 0.6090 and 0.5260 respectively this morning. An on-target delivery of UK Q2 GDP proved insufficient to boost the GBP.

The NZD lurched higher relative to the AUD after the RBNZ announcement. The cross then consolidated around 0.8750 overnight. We continue to see further appreciation in the cross over the medium-term with our year-end target around 0.8900.

It should be a relatively quiet end to the week, with no data releases scheduled on either side of the Tasman. For today, stiff resistance for the NZD/USD should be encountered approaching the mid-June highs of 0.8140.

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Majors

The USD weakened against most of its peers over the past 24-hours. The NZD was the notable outperformer.

Currencies once again showed some volatility around trans-Atlantic data releases overnight.

The July headline German IFO survey picked up slightly (from 105.9 to 106.2). This suggests the German economy is gathering momentum, although the recovery is still likely to be modest.

However, after an initial spike higher in response to the data the EUR/USD declined. This was possibly due to the forward-looking ‘expectations’ component of the survey actually slipping slightly from 102.5 to 102.4.

The EUR/USD touched as low as 1.3170 before recovering this morning against a weak USD. It now sits around 1.3240.

The market appeared less than enamoured with the US durable goods report overnight. Headline durable goods orders rose a much greater than expected 4.2%m/m in June.

However, excluding transport, orders were disappointingly flat. The USD index, that had touched as high as 82.40 after the IFO survey, declined from late last evening to sit below 82.00 currently.

The GBP/USD was on the ascendancy ahead of the release of UK Q2 GDP. In the event, the data came bang in line with consensus expectations, at 0.6%q/q (1.4%y/y).

However, this was insufficient to impress the market and the GBP quickly fell back, touching below 1.5280 late last night. However, later in the night it benefited from the broad USD weakness, to sit around 1.5360 this morning.

The AUD was also a beneficiary of broad USD weakness this morning. Having bumped along around 0.9150 for much of yesterday it climbed to 0.9230 early this morning.

More broadly, the AUD/USD continues to consolidate in a wide 0.9000 to 0.9300 trading range.

It will likely be a fairly quiet end to the week. There are few global data releases of note. The final reading of the US University of Michigan consumer confidence survey is released tonight.

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