By Kymberly Martin
Currency markets continue to search for a lasting sentiment, one they can hang their hat on for more than a session or a day, one that doesn’t see traders lose a shirt as they chase their tails.
As to the last 24 hours since we were last in this position there is a recovery of sorts to note for the AU$ and the GBP but most currencies have traded all too familiar ground.
Yesterday’s Australian inflation readings do not of themselves pressure the RBA to cut further.
In fact since early April the OIS market has slashed easing expectations from 66bp of cuts over the next 12 months to reflect just 39bp of cuts over the next year; that’s one rate cut and a toss of the coin for a second.
As evidenced by the firming of the AU$ since yesterday afternoon currency markets were wrong-footed by the CPI releases having taken their lead from the RBA Minutes and Stevens commentary in recent days.
The price action after the data stymieing what was looking fait accompli for parity on the NZDAUD cross (capped at 0.9960 for now).
The pound climbed in the aftermath of the release of the Minutes from the BOE April meeting. While the vote at the table was unanimous (9-0) for holding policy settings the Minutes showed keeping interest rates at a record low was a “finely balanced” decision for a minority of officials.
UK Gilts rose in yield not surprisingly, leading most rates markets higher (in yield terms) including the US treasury market which was also buoyed by an upbeat print of Existing Home Sales. Germany also slipped in an improved growth forecast for the Eurozone’s largest economy (now 1.8% vs. 1.5%).
So we head into the pointy end of the week, with local analysts drooling in anticipation for commentary from the RBNZ Asst. Governor, John McDermott.
His speech today is expected to provide colour for markets ahead of next week’s OCR Review.
With our CPI held down by lower commodity prices (fuel) and the ripe NZ$ generally the speech from McDermott should provide an insight into the view of inflation expectations, some might even call it a mini MPS.
Tune in just after midday for commentary from Hamilton to the speech at the regional Chamber of Commerce lunch.
On the agenda without as much fanfare today, monthly updates on migration data, card spending and consumer confidence. Across the Tasman, the 1Q update of the NAB Business Survey is also due early this afternoon.
As the countdown continues to EU Finance Ministers meeting to progress, we hope, discussions on the financial future of Greece there is a busy calendar across the globe of provisional PMI readings.
“Flash” updates of monthly PMI readings start with China later today and include equivalent updates from across Europe and the USA tonight NZ time. The latter also serves up New Home Sales data and the Kansas City Fed’s Mfg. survey.
For now the NZ$ remains capped south of the 0.7750 level with pent up demand eyeing any retreat towards a 0.7510/0.7560 window initially, while parity remains an ongoing tease for NZDAUD positioning – all ears on the mighty ‘tron at lunch time it is then.
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