By Kymberly Martin
The USD strengthened sharply on Friday night.
The EUR and NZD were amongst the worst performers.
Friday night was all about the US payrolls report.
On the better-than-expected headline number and decline in the US unemployment rate, the USD gapped higher along with US yields.
Meanwhile, the S&P500 declined 1.4% led by interest rate sensitive sectors such as Utilities.
After the report, the EUR promptly fell from 1.0990 to end the week around 1.0840. However, the title of worst performing currency was reserved for the NOK. It was on the back foot from early in the evening after data showed Norway’s Jan industrial production contracting at the fastest pace since Aug 2005. It again fell sharply after the US report. Overall it declined around 2.3% relative to the USD. From 7.7290 the USD/NOK ended the week at 0.7900, its highest level since June 2002.
The USD/JPY pushed up to the very top of its range of the past three months, closing the week at 120.80. Early Dec. highs at 121.85 are now coming back into sight. Ultimately we see resistance being broken, with the USD/JPY ending the year close to 123.00.
The AUD was also not immune from the USD’s strength. From above 0.7840 the AUD/USD plunged to end the week at 0.7720, though still within its recent trading range. The weekend’s China trade data displayed some oddities with Feb exports rising 48.3% (14.0% exp.). The market may take the resulting strong trade balance with a pinch of salt, this morning.
NZD/USD has continued its recent sharp fall in the wake of the US payrolls report.
After trading sideways for much of Friday, the NZD/USD fell from above 0.7500 to end the week at 0.7360. Near-term support is now eyed at 0.7310.
We have long argued our bearish NZD view for the year is premised on a stronger USD as the USD Fed begins rate hikes mid-year. Friday’s data supports this view.
The NZD experienced something of a roller-coaster against its European peers on Friday night. The NZD/EUR climbed to above 0.6860 ahead of the US payrolls release, only to plummet back to earth thereafter. The NZD/EUR ended the week at 0.6790.
The NZD/AUD was on a steady descent for most of Friday, a move that was only briefly interrupted by the payrolls release. The NZD/USD ended the week at 0.9540, down from new intra-week highs around 0.9720.
We continue to see the NZD/AUD trading in a broad 0.92-0.98 range in 2015. This stretches the upper limits of fundamental ‘fair value’ that we calculate currently lies at 0.9185.
Key for the NZD this week will be Thursday’s RBNZ meeting. We anticipate the RBNZ will flatten its 90-day bank bill track.
But this should not be news to the market that already prices an OCR that is lower rather than higher than current in the year ahead.
The RBNZ will likely reiterate that NZD’s strength is unjustified and unsustainable. These comments will be particularly aimed at the likes of the NZD/AUD. Still, the NZD is quite used to this sort of rhetoric.
An otherwise fairly straight bat from the RBNZ suggests Feb lows on the NZD/USD, close to 0.7200, will not be breached this week.
However, by year-end we continue to see the NZD/USD trading at 0.7000.
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