Stimulus promise and rate cuts in Europe and China shift the NZD higher; today eyes are on the latest migration data

By Kymberly Martin

NZ Dollar

There was plenty of volatility in the NZD on Friday night. The NZD/USD ended the week at 0.7880, but well off intra-night highs.

The NZD/USD traded a 0.7860-0.7900 range for most of Friday. However late in the evening when the PBOC unexpectedly announced rate cuts the NZD burst higher.

The market was no doubt speculating that rate cuts would spur China growth, assisting demand for NZ and AU commodities.

However, from above 0.7940 the NZD/USD then subsided to end the week around 0.7880. Resistance remains at 0.7950, while support is eyed at 0.7840.

The move higher in the NZD/USD also inspired a step higher on most of the crosses, with the exception of the NZD/AUD.

The NZD/AUD had been sliding from early evening, failing to test resistance at the 0.9150 level. It came to end the week a little lower at 0.9090.

The most notable gain on the crosses was for the NZD/EUR. From early evening trading around 0.6280, the cross was on the ascendancy following dovish comments from ECB President Draghi. It was then catapulted to above 0.6380 (its highest levels since early-Sept) before consolidating to end the week at 0.6360.

Meanwhile the NZD/JPY made a further bid for freedom, touching above 93.60, its highest level since July 2007. However, it subsequently drifted lower to end the week at 92.80.

Today, NZ October net migration data will be released. We expect these will still be running at an elevated level.

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Majors

On Friday night, official “speak” and action disrupted what looked like a quiet end to the week. The EUR fell sharply while the CAD, AUD and JPY outperformed.

First, on Friday afternoon, Japan’s finance minister Aso warned the JPY’s recent weakening had been too rapid. This resulted in an initial gap lower in the USD/JPY, to 117.40,  even though he did add; “It’s up to the market to set the currency rate”. Subsequently, the USD/JPY consolidated to end the week at 117.80.

Next, ECB President Draghi used a scheduled speech at the European Banking Congress to reassert the ECB’s willingness to do whatever it takes to support the region (see Fixed Interest). This saw the EUR/USD step down sharply from above 1.2550, to end the week around 1.2390.

By contrast, the USD index pushed up from around 87.60 to end the week around 88.30, its highest level since mid-2010. Last week’s CFTC positioning data showed speculative USD longs extended to 365k from 342.9k. This is an historic extreme since the series began in 1999.

Finally, the Bank of China surprised the market by cutting rates (see Fixed Interest) late on Friday night. The AUD and NZD were key beneficiaries, on the perceived support the move would provide to China growth. The AUD/USD initially popped from 0.8630 to above 0.8720 before subsiding to end the week around 0.8670.

Amongst all this excitement it was easy to lose the one data release of note, early on Sat morning. Canada Oct core CPI came in at 0.3%m/m (0.2% expected) to be up 2.3%y/y. The USD/CAD gapped lower on the result before recovering slightly afterward. The USD/CAD ended the week at 1.1230.

It is a fairly busy data calendar for the week ahead despite being broken by Thursday’s US Thanksgiving holiday. Tonight kicks off with the release of the German IFO business survey, US Services PMI and a scheduled speech by ECB’s Nowotny.

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