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Intra-day volatility across currencies as markets await progress in US fiscal negotiations

Intra-day volatility across currencies as markets await progress in US fiscal negotiations

by Kymberly Martin

NZ Dollar

The NZD/USD inched a little higher on Friday night, but remains within the tight range it has traded for the past fortnight or so. It ended the week at 0.8320.

With no significant domestic data releases to end the week the market remained focused on US fiscal developments. Here, the market remains in limbo as no break-through has been forthcoming.

This saw the NZD/USD trade a tight 0.8310-0.8350 range on Friday night. More broadly the NZD/USD remains within the 0.8200-0.8350 range that has contained it in recent weeks.

More of the same looks likely for today, in the absence of a major development in the US fiscal negotiations.

Today is also a public holiday in the US. Domestic data today (the BNZ Performance of Services Index), is likely to remain solidly in expansion, consistent with last week’s PMI. However, it is not expected to be a major market mover. For today, NZD/USD resistance is eyed at 0.8355 while support is seen at 0.8280.

The NZD/AUD crept a little higher on Friday night to end the week at 0.8790. Tomorrow’s RBA Minutes for October are unlikely to surprise the market, with the RBA likely to appear as being comfortably ‘on hold’.

However, we still believe there is a strong chance of another RBA rate cut early next year. This underpins our forecast for the NZD/AUD to hold around 0.9000 through the first part of next year. The market now prices only a 40% chance of a further 25bps cut from the RBA.


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Despite a bit of volatility intra-night, most currencies traded fairly tight ranges on Friday, as markets await progress in US fiscal negotiations.

However, the weekend does not seem to have brought any break-through in the impasse. As the US government has been in partial shutdown for almost a fortnight, the crucial October 17 deadline is now only days away.

Negotiations however do appear to have taken on greater urgency with some softening in former Republican demands.

On Friday night, European and US equities posted positive returns (S&P500 up 0.60%), perhaps hopeful of a deal over the weekend. Our risk appetite index (scale 0-100%) has rebounded to 63%, from as low as 49% early last week. The USD index traded between 80.25 and 80.55 on Friday night, to end the week just below 80.45.

The EUR/USD tracked as high as 1.3580 late on Friday night. However it failed to break higher and ended the week just below 1.3550.

The AUD/USD tracked sideways around the 0.9470 level on Friday night. The local focus for the AUD this week will be Tuesday’s release of the October RBA Minutes. These are expected to show the RBA sitting comfortably on hold. However a swathe of Chinese data releases will also be important for the AUD this week.

These kicked off over the weekend with the release of China September trade data. It showed unexpectedly weak exports, -0.3% y/y (5.5% expected). Imports at 7.4% were close to expectation (7.0%).

Export weakness may partly reflect ongoing efforts to crack-down on over-invoicing of exports, so are not necessarily indicative of a weakening trend in global demand for Chinese exports. The numbers may nevertheless weigh on the AUD at the start of the week.

This week we’ll get China Q3 GDP as well as the monthly numbers for Industrial Production, Retail Sales, FDI, CPI and PPI.  September Credit and Money Supply numbers are also to be released.

If we get news of a US government re-start this week, the other key focus will of course be the backlog of US economic data. Most notable of these is the delayed September payrolls report. Here, the risk is that a bumper September non-farm payrolls report re-centres the market’s tapering expectations on the December FOMC meeting. Potentially this could allow the USD to recover some of its recent losses.

Otherwise for today, it may be a relatively quiet start to the week with public holidays in the US, Canada and Japan and only Industrial Production scheduled for release in the Eurozone.

All its research is available here.

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