Even though an OCR rise is priced in fully, NZD may still get an 'obligatory knee-jerk pop higher'

Even though an OCR rise is priced in fully, NZD may still get an 'obligatory knee-jerk pop higher'

by Kimberly Martin

NZ Dollar

The NZD has continued to trade a fairly tight range over the past 24-hours. It sits around 0.8470 currently.

The general lethargy in currency markets this week continued overnight. There was an absence of key data releases, and the stalemate in the Crimean situation continues.

The NZD/USD attempted to break above 0.8500 a couple of times but has returned to sit around 0.8470 this morning.

Trading on the crosses was also unspectacular. The most notable development was a push higher in the NZD/AUD early this morning. Having traded sideways around 0.9400 for much of the past 24-hours it nudged up to 0.9430 early this morning, as the AUD/USD broke below 0.9000.

There are no domestic data releases today as the market remains firmly focused on tomorrow’s RBNZ meeting.

The RBNZ is almost unanimously expected to raise the OCR by 25bps tomorrow. Still, on delivery the NZD/USD may experience the obligatory knee-jerk pop higher.

More important however, will be the detail of the MPS. We will be looking for potential upgrades to growth, inflation and 90-day bank bill projections.

For today, NZD/USD resistance remains at 0.8520. Support is eyed between 0.8420 and 0.8440.

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Majors

Currency markets were fairly uneventful overnight. Over the past 24-hours the AUD has underperformed while the JPY has outperformed.

Following last week’s action-packed agenda, culminating in the delivery of US payrolls on Friday night, this week feels somewhat directionless. There is a lack of major data releases in the early part of the week and headlines from the Crimea have subsided, for now. The standoff remains unresolved however. Ukraine has bolstered its defences in the region ahead of its Prime Minister’s imminent meeting with US President Barack Obama.

Our global risk appetite index remains at a fairly steady 65%. The WTI oil price dropped around 0.90% overnight, to almost US$100/barrel. Some of the risk premium built into the price earlier this month has been reduced.

The USD index treaded a gentle path higher to above 79.90 early this morning, before returning to trade at 79.80 this currently.

Moves in key European currencies were similarly undramatic. The EUR showed little attention to the release of German January trade data overnight. This came in line with expectation at €15 bln, although both exports and imports were stronger than expected. The EUR/USD trades around 1.3860 currently.

Yesterday afternoon the AUD was initially knocked a little lower after the release of the NAB business survey. The business conditions index disappointingly back-pedalled sharply in February to a reading of 0 from +5. This reverses around half the post-election gains. Business confidence was a little more resilient. The AUD/USD also weakened early this morning. It appeared to gap through support around the 0.9000 level to trade at 0.8980 currently. Today the AU consumer confidence survey will be released. The recent strength in AU retail sales suggests confidence should be improving.

Elsewhere, the UK trade balance will be released tonight along with Eurozone industrial production.

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3 Comments

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So this is the market pricing in the increased OCR
We are steadily losing our pricing advantage against the Ausse Dollar , and the tyranny of distance aside , we risk beoming un-competitive in Aussie food markets
Tommorow after the OCR goes up , we will be another 1 or 2 cents closer to PARITY with the Aussie$ .
Graeme Wheeler really is between a rock and a hard place.

Yes true Boatman, but no matter what people think when it comes to markets you can't have your cake and eat it too - well not for too long anyway. If Australia had a growth rate at 3.50%, heading above 4% this year, and NZ had 2.6% growth rate headed lower, we'd be demanding/expecting a lower NZDAUD cross rate (and we'd be getting it). But positions are reversed and Australia is currently getting that relief because its the one that needs it.
 
However, in markets what also hold true is "buy the rumour sell the fact".  All this is priced in and technically the cross rate is looking very toppy...maybe not immediately, as the hike may peroduce a little more upside, but I suspect the next level we see 500pts away from here will be on 0.9000  i.e. not parity unless of course you think that the market is understating its current expectation for NZ GDP above 4% ?   

More kiwi visitors to Gold Coast.. but please no more flash mob Haka in Robina town centre, I cringed at seeing one