By Kymberly Martin
The recent USD yoyo continues with the USD again underperforming most of its peers overnight.
European currencies outperformed.
Overnight, the recent run of softer-than-expected US data continued, with both industrial production data and the Empire Manufacturing survey coming in below expectation.
In addition, the WTI price has fallen a further 3% to its lowest level in around six years. This will no doubt again raise concerns that the plunge in the oil price represents softening demand as well as excess supply. US equities have rebounded, led by interest rate sensitive sectors.
In this context, the USD was on the back foot overnight. From above 100.20 the USD index now trades at 99.50, The EUR/USD was the key beneficiary, along with the SEK and DKK. The EUR/USD has rebounded from early evening lows around 1.0500 to trade at 1.0600 currently.
The worst performing currency however was the NOK, likely suffering from the decline in the oil price and rate cut speculation. Consensus expects the Norges Bank to announce a 25bps rate cut this Thursday night, taking its deposit rate to 1.00%. The USD/NOK has risen to 8.2450, its highest level since May 2002.
The AUD sits a little higher this morning, at 0.7660, as the market now awaits the release of the RBA’s Minutes.
NZD/USD pushed higher with many of its peers overnight. From 0.7360 early last evening, the NZD/USD now trades at 0.7400. A band of resistance is seen approaching 0.7450. Solid support remains at the early-Feb and March lows near 0.7200.
On the crosses, the NZD/JPY has rebounded to trade at 89.80 this morning, while the NZD/AUD has pushed up to trade at 0.9660. With no domestic data releases scheduled for today the cross may take its cue from the release of RBA Minutes. Any comments that encourage markets in their pricing of an RBA cut at the next meeting would likely push the NZD/AUD higher. However, we believe the market is likely already over-pricing the RBA’s medium-term actions, with 50bps of cuts priced by year-end. Key resistance for the NZD/AUD lies at its recent highs around 0.9720.
In the early hours of tomorrow morning the latest GDT dairy auction will take place. We have a negative bias for this event given: a stronger USD, a weaker EUR, some rain in NZ, lower oil prices, uncertainly associated with the imminent EU production quota removal, low international grain prices and a general retreat in risk appetite in global markets. A soft outcome would likely take an immediate toll on the NZD, though it is worth remembering dairy prices have already lifted 30% since their early-Dec lows.
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