Upbeat Fed and shrinking EM risk has markets more buoyant; Yen shunned; Aussie business confidence up

by Kymberly Martin

NZ Dollar

As risk appetite continues to recover in global markets the NZD/USD has crept higher. It sits at 0.8340 this morning.

Domestically, it was another fairly low-key day yesterday. The main data release this week remains Thursday’s BNZ PMI.

For now, the NZD continues to take its cue from offshore developments.

Overnight global risk appetite continued to improved (Our risk appetite index has rebounded further to trade at 60%). The drivers appear to be two-fold. First, an absence of negative headlines from emerging markets and further rebound in key e.m. currencies. Second, the much anticipated, inaugural address by new Fed Chair Yellen failed to ruffle markets.

In the backdrop of a fairly range-bound USD the NZD/USD crept steadily higher. At 0.8340 it is now bumping up against a crucial resistance level. A break through here today would open the way for a return to January highs above 0.8400. Support is eyed at 0.8270.

The most notable move on the crosses over the past 24-hours has been the NZD/JPY. As risk appetite continues to recover the JPY has been further shunned at the expense of the NZD and AUD. The NZD/JPY trades at 85.60 this morning. It has rebounded almost 5% from its early-February lows. We continue to see a NZD/JPY above 85.00 in H1 as consistent with fundamentals.

The NZD/AUD sits a little lower this morning. It took a step lower after the release of the strong AU NAB business survey yesterday. However, it found support just above 0.9200 overnight and trades at 0.9220 this morning.

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Majors

Major currencies were little moved by Fed Chair, Yellen’s testimony and comments to Congress overnight. She signalled no change to the policy path outlined by her predecessor.

After initial dips lower on breaking headlines, the NZD, AUD, CAD and GBP are all stronger against the USD.

The AUD/USD was the outperformer over yesterday’s session, after the AU NAB business survey showed confidence rose for the first time in four months.

With business conditions pushing close to 3-year highs, the AUD/USD sits around 0.9040 this morning. This is the first break above the 0.9000 since mid-January.

The GBP/USD made moderate gains overnight, thanks to an industry report which showed that UK retail sales growth was much stronger than expected in January. The GBP/USD sits at 1.6460, continuing its recent rebound as the UK economy strengthens more quickly than the Bank of England had forecast. In this context the release of the BoE’s inflation report tonight will be important. Despite improvement in employment indicators the Bank may emphasise interest rates will remain low as long as inflation is contained. It will be grappling with the same nuances as the Fed in last night’s comments.

All its research is available here.