By Kymberly Martin
The NZD has been the weakest performer over the past 24-hours while the JPY has outperformed.
Markets were reasonably calm overnight. Following on from a 3% rebound in Chinese equity markets yesterday, the Euro Stoxx 50 experienced only a modest decline overnight while the S&P500 is currently up 1.4%.
Credit spreads continue their attempt to stabilise. Our global risk appetite index has poked its nose back above 20%.
The JPY made most of its gains early in the evening, failing to push on overnight as risk sentiment stabilised. The USD/JPY now trades just below 114.00.
The USD managed an early morning rally despite disappointing US data overnight, including a soft reading on the Empire manufacturing survey. Weakness in the US manufacturing sector is well known, as it struggles in the face of a stronger USD and sluggish offshore demand. The USD index has traded up from late evening lows near 96.40 to sit around 96.90 currently.
The GBP/USD started a steady descent after the release of UK CPI inflation data that came in slightly below expectation. The market now prices a 60% chance that the Bank of England’s cash rate will be 25bps lower in a year’s time. Not long ago the market priced BoE hikes. The GBP/USD has traded down from above 1.4500, to sit at 1.4300 currently.
The NZD/USD has been the weakest performer over the past 24-hours. It fell sharply yesterday afternoon following the release of the RBNZ’s latest inflation expectations survey.
Downward momentum continued overnight, assisted by another fall in average prices at this morning’s GDT dairy price auction. While the price fall (-2.8%) was not as bad as we feared, it will be of little solace to NZ’s dairy industry, with prices still at very low level. Prices have now fallen at each of the four auctions in 2016, to be 33% lower than a year ago.
The NZD/USD trades at 0.6560 this morning. Near-term support is now eyed just above 0.6500.
The AUD/USD was also a bit softer overnight, trading down below 0.7100. The NZD/AUD cross was able to find a base overnight, after its steep fall yesterday afternoon, following the release of the NZ inflation expectation survey. It found support at 0.9200 and now trades at 0.9240. Our short-term model for this cross suggests ‘fair value’ sits around 0.89. We see further downside to the cross in coming months.
Tonight, the US Fed releases its January Minutes, though the market may see these as having been superseded by subsequent market developments.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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