Little reaction to strong QSBO despite signals that pricing intentions foreshadow rising inflation

by Kymberly Martin

NZ Dollar

The NZD/USD has pushed higher overnight along with the AUD. It sits at 0.8670 currently.

The NZD displayed little response to the solid QSBO print for Q1. The survey showed a big step up in pricing intentions, from +23 to +37, suggesting inflationary pressures are building. This will not be lost on the RBNZ which remains committed to getting the OCR back to ‘neutral’ (circa 4.25%) as soon as possible.

It wasn’t until the evening when a strong downward drift in the USD set in that the NZD/USD pushed higher. From 0.8630 last evening it now sits at 0.8670. Significant resistance to a push higher will be encountered at the turn of the month highs around 0.8700. However, the fate of the NZD over the next 24-hours is unlikely to be in the hands of domestic drivers. Rather, the release of the Fed’s Minutes for March will likely set the tone for the night (see Majors). After last week’s payrolls data it is more difficult to see the Minutes inspiring a reversal in the recent soft USD trend. However, NZD/USD support would be encountered on any pullback toward 0.8600.

The NZD weakened relative to a strong JPY over the past 24-hours after the Bank of Japan failed to announce any additional monetary stimulus (see Majors). The NZD/JPY now sits at 88.10

The NZD/AUD traded a fairly tight range overnight, but sits slightly lower at 0.9270 this morning. We continue to see resistance for the NZD/AUD at 0.9310. Support will be found approaching 0.9200.

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Majors

Overnight the resounding theme was of USD weakness against major and emerging market currencies.

As US equities provided positive returns, our risk appetite index (scale 0-100%) rebounded from 64% to 66%. The S&P500 is up 0.30% while the NASDAQ has rebounded 0.90%.

While US bond yields consolidated overnight they have drifted lower from early this morning.

Meanwhile, the USD index has continued its post-payrolls slump, in the absence of any key data releases. From 80.20 last evening the USD index now sits just below 79.80. This is now 1% below its pre-payroll highs.

While all major currencies benefitted from USD weakness the JPY has been the key outperformer. The Bank of Japan refrained from adding to its monetary stimulus at its meeting yesterday. Governor Kuroda suggested the economy would be resilient to the increased sales tax introduced at the beginning of April. However, the Bank stands ready to ease further if necessary, which we suspect may occur later in the year. The fact it did not announce any measures this time will have surprised some, helping add to the strengthening tone in the JPY. From 103.00 last evening the USD/JPY has clumped to 101.60 this morning.

The GBP received a shot in the arm when data showed UK manufacturing production rose 1.0%m/m in February (0.3% expected) to be up 3.8%y/y. This is its fastest pace in three years. From 1.6610 last evening the GBP/USD sits at 1.6750 this morning.

Yesterday’s AU NAB business survey showed conditions lifted slightly in March (to 1 from 0), but remained at relatively subdued levels. Business confidence is still positive but softened to its lowest post-election level (to 4 from 7). It is now below long-term trend. However, the AUD/USD took the data in its stride and treaded a steady path higher overnight, to sit at 0.9360 this morning. This is its highest level since late November, last year.

Today, the AU Westpac Consumer Confidence survey will be released to complement yesterday’s business survey.

Tonight all eyes will be on the release of US Fed Minutes from March. It is difficult to see comments that are likely to significantly reverse the post-payrolls slump in the USD.

The UK and German trade balances will also be released tonight.

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