By Kymberly Martin
In a data-light night, trading in most currencies was relatively orderly.
The GBP has been the best, and the JPY the worst performer over the past 24-hours.
The week after the US payrolls release is normally lighter on significant data and often marked by a period of reflection and consolidation. Yesterday was no exception.
Equities were relatively flat on either side of the Atlantic. Our global risk appetite index (scale 0-100%) remains at 55% and currency moves were generally contained.
The JPY was on the back foot from early yesterday afternoon. The final reading of Japan 4Q GDP was revised down to 0.4%q/q (from 0.6%). This suggests a tepid recovery from the technical recession of the prior two quarters. Bank of Japan’s Deputy Governor, Nakaso, was yesterday quoted saying the “effects of a weaker yen on boosting export volume is finally coming into play”. He also hinted the BoJ stands ready to take further action if inflation expectations decline. The USD/JPY has pushed higher in the early hours of this morning to trade at 121.30 currently. The next line of resistance lies at the early-Dec highs of 121.85.
The EUR/USD aborted an attempted rebound around midnight. From intra-night highs above 1.0900 the EUR/USD now trades back at 1.0850.
It was difficult to pinpoint any fundamental catalyst for the strong showing from the GBP/USD overnight. Rather, it appears to have been driven by a technical rebound from key support levels close to 1.5000, in the backdrop of a fairly lethargic USD. The GBP/USD trades at 1.5120 this morning.
The AUD has been relatively range-bound over the past 24-hours, as many parts of AU yesterday celebrated a public holiday. Today the AU NAB business survey will be released. At the prior reading (Jan) business conditions and confidence were not far from their long-term averages. However, for the AUD it will be Thursday’s employment report that has the greatest potential to drive a significant response. Currently, the AUD/USD trades at 0.7710.
NZD/USD fell yesterday afternoon after comments from PM Key that the RBNZ is looking at new tools so it doesn’t have to tighten. This may be referencing the Bank’s current consultation on property investor loans, with the intention of implementing new regulation of banks.
While we agree the Bank can afford to be patient before considering further rate hikes, we are not inclined (as the market is) to see rate cuts in the year ahead.
Rather, our bearish NZD/USD view is premised on a narrowing of growth and interest rate differentials, as US economic momentum picks up.
Having touched 0.7390 last evening, the NZD/USD now trades at 0.7370. For today, support is eyed at 0.7310 and resistance seen approaching 0.7400.
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