The strength of the currency raises the odds that the RBNZ may pause its hiking cycle in June or July

by Raiko Shareef

NZ Dollar

The NZD built on its performance over Friday to drift higher over the past 24-hours.

The NZD/USD is 0.2% stronger at 0.8680.

There was similar strength seen on the crosses, too.

The NZD/AUD is 0.2% stronger at 0.9360, consolidating above the 50- and 100-day moving averages that had capped it since early April.

One upshot of the NZD’s gains against major currencies over the past week is a resurgent NZ TWI.

At 80.6, it is just 0.6% away from the post-float high hit at the start of April.

The strength of the currency raises the odds that the RBNZ may pause its hiking cycle in June or July.

On that note, the RBNZ yesterday announced that Governor Wheeler will be speaking tomorrow morning on “the significance of dairy to the New Zealand economy”.

We will be looking for any signs of discomfort at the growing disconnect between NZ commodity prices (heading lower) and the NZD (staying elevated).

There are no local data releases today, so we expect a relatively staid session ahead of the RBA decision at 4.30pm (NZT). The NZD/USD’s April high of 0.8746 provides good resistance for now, with support around 0.8560.

----------------------------------------------------------

To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.

----------------------------------------------------------

Majors

Markets were understandably quiet on Monday, with investors in the UK and Japan on holiday. Major currencies are little changed over the past 24-hours.

Matters were not helped by the exceptionally light data calendar. In our day, the only release of note was the final reading of HSBC’s China PMI for April. Somewhat surprisingly, the initial estimate was revised down from 48.3 to 48.1. In contrast, the market was expecting a slight upgrade.

Investors have become used to seeing softer data outturns from China in the recent past, and have largely bought into the idea that slowdown is just a symptom of a transitioning economy. As a result, the market reaction was fairly muted, with AUD/USD losing just 0.2% before recovering fully. The AUD/USD is unchanged for the day at 0.9280.

The JPY briefly benefitted from a safe-haven bid following that data release. The JPY also strengthened slightly after Bank of Japan Governor Kuroda stated that the impact of Japan’s recent consumption tax hike has not been as bad as feared. While he refused to be drawn on the prospect of further easing, these comments are consistent with other official commentary made recently which imply a central bank in no hurry to add to its easing programme. The JPY is marginally stronger against the USD at 102.10.

US equity markets opened sharply lower on continued (negative) news flow from the Ukraine, with the S&P 500 falling as much as 0.8% from last week’s close. That was fully retraced after the US ISM service sector index beat expectations to rise to 55.2 in April, the fastest pace of expansion in eight months.

Today, the highlight for local traders will be the RBA’s policy meeting. No change to policy is expected, but look out for any change in tone, in the context of a much more comfortable CPI outturn for Q1 2014. Elsewhere, US trade numbers, euro-zone retail sales, and the OECD’s global economic outlook will garner some attention.

Other news:
* US factory orders +1.1% m/m vs +1.5% expected.

All its research is available here.