By Kymberly Martin
It was a night of two halves. Many currencies were fairly range-bound overnight, ahead of the release of the US FOMC Minutes early this morning. Subsequently all have plunged as the USD index surged. The exception was the GBP which has held onto much of its overnight gain.
The US FOMC Minutes from early this morning caught the market by surprise in heightening the prospect of a further FFR hike as early as June. Equities immediately took fright. The S&P500 gave up its night’s gain, now down 0.5%, led by the interest rate sensitive utilities sector. The USD index surged higher along with US yields.
The EUR, AUD and NZD were hit hard. From above 0.6800 the NZD/USD has rapidly found itself below 0.6740. Still, the USD index is only back at April highs. The market still prices less than a 30% chance of a June hike. If the market is to really buy into the idea in coming weeks then the USD likely has a lot further to run. Near-term support for the NZD/USD is eyed at the May lows of 0.6720. Below this, the 200-day average of 0.6650 comes into view.
The JPY has also extended its recent decline. It was on the back-foot against the USD for most of the evening, with the Fed Minutes providing a further leg-up for the USD/JPY. The USD/JPY now flirts with the 110.00 level.
The GBP/USD powered higher last evening on the back of a poll in the Evening Standard. This showed indicative voting in the upcoming referendum on EU membership had tipped in favour of the ‘Remain’ camp. ‘Remain’ was on 55%, while ‘Leave’ was on 37%. The last time this poll was conducted between 16-18 Apr, showed a 49% vs. 39% result, so there have been moves on both sides.
In the run up to the event, polls will continue to have more influence on the market than UK data releases. The GBP/USD traded at 1.4410 last evening. It now sits just below 1.4600, having lost only a bit of ground following the release of the US FOMC Minutes.
The AUD/USD has traded down to sit below 0.7240 at present. The focus today will be the AUD employment report. While the report struggles to fight off its reputation as being highly volatile, it remains a key influence on the currency. Our NAB colleagues expect it to show that recent labour market improvement continues. They look for employment growth of 16k for the month. This rate should be sufficient to keep the unemployment rate unchanged at 5.7%. This is modestly stronger than consensus expectations.
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