The USD has weakened against its European peers and the JPY overnight.
With some fairly volatile overnight trading, the NZD/USD now trades at 0.6620 ahead of the RBNZ meeting this morning.
In a relatively quiet data night the EUR appeared to take its cue from comments from ECB policy maker, Nowotny. Defending the ECB’s actions last week, he said that analysts had formed unrealistic expectations ahead of the Bank’s meeting. “It was absurd what expectations were expressed”. As those expectations continue to be dashed, the EUR/USD now sits around 4.3% above its pre-ECB level, at 1.0990.
The GBP/USD was also carried along on the EUR’s coattails. From just above the 1.5000 level last evening, the GBP/USD now trades at 1.5160, ahead of the Bank of England’s meeting tonight. No change of policy is expected. The Bank’s tone remains important in influencing market pricing, which currently sees a first BoE hike in early 2017.
The JPY was also a beneficiary of the ensuing USD weakness. From early evening highs above 122.80, the USD/JPY now trades right on its 200-day moving average, of 121.60. Over the medium-term we continue to expect the JPY to weaken further, taking the USD/JPY back above 125.00. However, that is a story for next year as US-JP monetary policy clearly diverges.
The NZD and AUD have both exhibited some volatility overnight, ahead of two key risk events today, the RBNZ’s meeting and the AU employment report.
Although a close call, we expect an RBNZ cut today. If delivered, this will likely see a knee-jerk step down in the NZD given it is far from fully priced. The extent of any pullback will be influenced by the RBNZ’s accompanying rhetoric. Although we see the Bank as very reluctant to cut the OCR below 2.50%, it may maintain a subtle easing bias.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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