By Kymberly Martin
The JPY and CHF are outperformers as risk appetite has faded overnight. ‘Commodity-linked’ currencies, including the NZD have generally declined against the USD.
Market sentiment turned slightly more cautious, as commodity prices have pulled back following their run higher this month.
A softer than expected February China trade balance, due to weaker-than-expected exports, may also not have helped sentiment. Equity markets on either side of the Atlantic were led lower by commodity sector companies.
In this backdrop the USD has traded a relatively boring path sideways, while the ‘safe haven’ JPY has returned to favour. The USD/JPY has traded down from 113.40 to 112.50. The lower-end of the range of past months sits somewhat lower, at 111.00.
The ‘oil-linked’ CAD has been the weakest performer over the past 24-hours. Its decline gained momentum in the early hours of this morning as the WTI price has fallen. Ahead of a meeting of the Bank of Canada this evening, the USD/CAD trades at 1.3380.
The AUD has traded a reasonably rocky path over the past 24-hours. In a speech by RBA’s Lowe yesterday morning the RBA appears relatively relaxed on the outlook for the Australian economy. It is performing relatively well despite a 40% decline in Australian commodity prices and mining investment over the past two years, due to support from a lower exchange rate and interest rates. Risks from offshore seem to be occupying more of the Bank’s thoughts.
The Bank notes that “scope exists for easier monetary policy” i.e. they do not have rates close to zero like many of their peers. Lowe was quoted as saying “it would be helpful to have a slightly lower currency”, however conceding that many central banks would say the same.
Along with yesterday’s solid AU business survey, there is a sense that the AU domestic economy may be performing better than many had feared. However, the AUD will also remain beholden to developments in global commodity prices.
The AUD/USD has traded between 0.7470 and 0.7410 over the past 24-hours, around 0.7460 at present. This is its first day of consolidation since its surge higher from the end of February.
The NZD/USD took a step down early yesterday morning when Fonterra announced downward revision to its 2015/16 milk price forecasts, from NZ$4.15 to NZ$3.90. The direction of move was no surprise though the number was likely at the lower-end of analyst expectations. It remains an extremely challenging environment for the dairy sector.
The RBNZ has often mentioned its discomfort when trends in the NZ TWI diverge from those of NZ’s primary goods export, dairy. In this context the Bank is likely uncomfortable with the current level of the NZ TWI (72.90). The average NZ TWI for the current quarter sits around 4% above the RBNZ’s projections as at the December MPS, while dairy prices have disappointed.
The challenge for the RBNZ tomorrow (assuming it does not cut rates) will be to sound sufficiently dovish to prevent a knee-jerk bounce in the NZD. In the past this has proven to be no easy task. The NZD/USD sits at 0.6780 currently, up from intra-night lows near 0.6740.
Get our daily currency email by signing up here:
Daily exchange rates
Select chart tabs
Kymberly Martin is on the BNZ Research team. All its research is available here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.