by Kymberly Martin
NZ Dollar
The NZD/USD has traded a tight range ahead of this morning’s US Fed and RBNZ meetings. It sits around 0.8270 at present.
Risk appetite remained somewhat subdued overnight as emerging market concerns continued to simmer and the market awaits the imminent US Fed meeting (see Majors). Over the past 24-hours the NZD/USD has largely traded sideways within a 0.8250-0.8290 range.
On the crosses, the NZD continues to bob around the crucial 0.5000 level against the GBP. Overnight, BoE’s Carney reiterated the Bank is in no rush to raise rates despite improved UK growth.
The NZD is a little weaker against the JPY this morning as a decline in risk appetite once again favoured the latter. The NZD/JPY sits at 84.50 currently.
Meanwhile, the NZD/AUD has pushed up to trade at 0.9450. Key resistance for this cross remains at last week’s 8-year highs, around 0.9530.
While chatter of the cross moving to parity now abounds, we believe this is likely misplaced. We continue to emphasise the cross is stretched relative to fundamental ‘fair value’ (0.8500-0.8700).
We also believe the RBNZ’s rate hiking cycle is now fairly well priced by the market. We also see reduced risk of an RBA rate cut in coming months following stronger recent AU data releases (CPI, NAB business survey).
This morning, event risk for the NZD is very high, with the US Fed and RBNZ announcing rates in rapid succession. An ‘on hold’ decision from the RBNZ, as we expect, could see a dip in the NZD/USD given the market still prices around a 35% chance of a hike today. The greater knee-jerk response would come from an unexpected hike. This would likely see an initial spike higher in the NZD.
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Majors
Overnight, markets remained jittery and the USD index traded with some volatility while the JPY outperformed.
Overnight, the Central Bank of Turkey raised its overnight lending rate from 7.75% to 12% to help reign in rampant inflation and stabilise the currency. Despite this, the Turkish Lira remained highly volatile. General market sentiment also remained somewhat subdued approaching this morning’s US Fed meeting. Our risk appetite index (scale 0-100%) has slipped back from 57% to 53%. Equities have provided modest negative returns. The Euro Stoxx 50 is down 0.9% while the S&P500 is down 0.5%.
In this environment the ‘safe haven’ JPY again found itself in favour. The USD/JPY declined from 103.20 to around 102.10 currently. Key support is now seen at the early-week lows around 101.80.
The USD traded with some volatility ahead of this morning’s FOMC meeting. The Fed is still expected to reduce its asset purchases by $10b this morning. It is expected to remain focused on improving domestic fundamentals rather than offshore jitters. The USD index traded as high as 80.80 early this morning before returning to 80.50 ahead of the Fed meeting (8am NZT).
The GBP/USD sits a little lower this morning. Overnight, Bank of England Governor Carney said a few quarters of above trend growth was welcome. However, it is not sufficient to change the “emergency setting” of interest rates. The GBP/USD trades at 1.6560 this morning.
The AUD/USD drifted lower from late last evening to sit at 0.8760 currently. Crucial support is eyed at last week’s lows of 0.8660.
Today, it is all eyes on the imminent meeting of the US Federal Reserve. Today the China HSBC PMI will also be released, following the disappointing flash reading last week. Tonight, UK credit data will be delivered along with the German unemployment rate and EC confidence surveys. Finally, this evening US Q4 GDP will be released (consensus, 3.2%q/q ann.) along with pending home sales.
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