By Kymberly Martin
NZ Dollar
The NZD/USD has benefitted from broad USD weakness in the early hours of this morning. It trades at 0.7440 currently.
The NZD/USD slipped a little yesterday morning after the release of the BNZ Manufacturing PMI. This declined 6.2 points to 50.9 in January. While still in expansion, at face value the reading does raise some questions about the strength in economic growth in early 2015.
The NZD/USD then suffered from contagion after the disappointing AU employment report. However, the NZD/USD was a key beneficiary of USD weakness early this morning. It briefly broke through resistance at 0.7450 but has subsequently returned to trade at 0.7440.
On the crosses, the NZD/AUD benefitted from the AU employment report. It gapped form 0.9540 to 0.9600. It has subsequently consolidated around this level. Yesterday’s report highlighted the contrasting labour market trends on either side of the Tasman, as the unemployment rate in NZ remains on a downtrend.
The market will now be eagerly eyeing the early-Jan highs on the cross, at 0.9660. No doubt talk of parity will once again start to circulate. We remain sceptical this will occur though believe fundamentals now support the cross remaining in the mid-90s for much of the year ahead.
The NZD/JPY experienced a volatile night as the BoJ pushed back on expectations for further monetary easing near-term. The NZD/JPY gapped below 87.30 after the BoJ’s comments before crawling its way back to 88.40 currently.
Today only NZ food price data is scheduled, but attention locally will likely fall across the Tasman to the RBA Governor’s testimony.
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Majors
Generally market sentiment was quite buoyant overnight, assisted by a ceasefire agreement reached in Belarus between Russia, Ukraine and European representatives. The Euro Stoxx 50 closed up 1.3%. The S&P500 is currently up 0.6%.
A 4% rise in the WTI oil prices was also notable overnight, now trading around US$50.80. Greek negotiations have taken a back seat for now, as European leaders have started their summit.
The EUR was a beneficiary of improved sentiment, undeterred by slightly softer than expected Dec EU industrial production data (0.0% vs. 0.2% exp.). The EUR/USD has rebounded from 1.1310 to trade around 1.1410 this morning.
The USD was on the back foot from early in the evening, Downward momentum was exacerbated by the release of disappointing US Jan retails sales data (-0.9% vs. -0.5% expected). From 94.90 last evening the USD index now trades at 94.00.
The GBP/USD gained a boost following the release of the Bank of England’s inflation report. While near-term inflation is expected to drop below zero in coming months the BoE’s projections see inflation breaching its 2% goal at the end of its three year forecasts. The Bank also raised its growth outlook for 2016 and 2017.
In addition, the Governor did not seize any opportunity to talk down the currency. When asked about the GBP reaching a seven-year high on a trade-weighted basis, Carney noncommittally said GBP gains are something the Bank “monitors”. The GBP/USD has risen from 1.5230 to 1.5380.
Overnight the JPY gapped higher as the Bank of Japan was quoted saying consumer sentiment will be hurt by any further fall in the currency. The BoJ also sees any extra stimulus as counterproductive for now. From 120.30 the USD/JPY now sits at 118.80.
The AUD/USD dropped like a stone after the release of the weaker than expected AU employment report yesterday afternoon (employment change -12.2k vs. -5k exp.). The unemployment rate jumped from 6.1% to 6.4%.
Our NAB colleagues still expect a peak in the unemployment rate at 6.5%-6.6% later in the year, and at least one more RBA cut. However, the AUD recovered overnight in the backdrop of broad USD weakness to trade at 0.7750 this morning. RBA Governor Stevens gives his semi-annual testimony to the House Economics Committee today.
Tonight EU Q4 GDP and the US Feb University of Michigan consumer confidence index will be released.
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