By Kymberly Martin
The USD has continued a gradual descent overnight, ahead of tonight’s US payrolls release.
The NZD/USD has failed to hold onto further gains, trading at 0.6910 this morning.
The handful of data releases overnight were mostly not too far from expectation, providing little direction to currency markets. The exception was perhaps the stronger-than-expected Canadian GDP release for January that saw the CAD jump higher. However, this move proved short-lived and the USD/CAD has returned to yesterday afternoon’s level around 1.2990.
Commodity and US equity markets were also pretty steady, although the Euro Stoxx50 closed down 1.3%, led by energy sector companies.
The EUR/USD has strengthened from last evening to trade around 1.1390 currently, its highest level since October last year. Similarly the USD index trades at its lowest level since this time, ahead of tonight’s US payrolls release
While a stronger-than-expected outcome could see a knee-jerk rebound in the USD, we believe the market’s threshold for positive surprise is now a lot higher. It has become increasingly sceptical that the US Fed’s actions are actually “data dependent”. The Fed appears easily swayed from its path of ‘normalisation’ by the slightest market volatility or external risk, even in the face of a firming US labour market.
The NZD/USD showed little response to yesterday’s release of the ANZ business confidence survey. Rather it drifted a little lower during the day, before making another assault on the 0.6960 level overnight. However, it failed to break higher and has subsequently returned to trade just above 0.6900. The NZD/AUD has traded a tight range, predominantly between 0.9010 and 0.9030.
This afternoon’s test for the AUD, NZD and risk sentiment in general will be the release of the China PMI series. Although the manufacturing index is expected to remain in contraction i.e. below 50, a small improvement from the prior reading is anticipated. The market will likely not take kindly to any disappointment, given its continued sensitivity to signs of softness in China.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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