By Kymberly Martin
The USD was on a steady ascent on Friday night, outperforming almost all of its peers including the AUD and NZD. GBP fell on ‘Brexit’ poll.
The most significant action in currency markets occurred in the early hours of Saturday morning after the publication of a UK referendum poll.
A poll for UK’s Independent newspaper, covering just over 2000 respondents via the internet, showed the ‘leave’ camp opening up a 10-point lead over ‘remain’ (55/45, vs. 51/49 in the equivalent poll back in April). A year ago the same poll put ‘remain’ in front by 60/40. The GBP/USD fell sharply on the results. From Friday evening highs around 1.4470, it briefly spiked below 1.4200, before ending the week at 1.4260. This is its lowest level since mid-April.
Conversely, the moves resulted in a brief surge in the ‘safe haven’ JPY. This highlights that the JPY remains a risk appetite proxy, thereby complicating any (indirect) attempts the Bank of Japan may make to weaken its currency. The USD/JPY ended the week just below 107.00.
Friday’s release of CFTC data showed speculative short positions in GBP had increased to 66.3k from 32.8k. Conversely, JPY longs rose to 42.9k from 14.8k.
The only economic data release of note on Friday night was the University of Michigan survey of consumer sentiment. Whilst the headline reading was pretty steady, more interesting was the slip in the 5-10-year inflation expectations component. This fell to 2.3%, the lowest reading in the series’ twenty year history. However, this was not sufficient to curtail the steady ascent of the USD. It has now rebounded 1.3% from last week’s lows.
The NZD and AUD were both a bit weaker on Friday night as softer commodity prices and generally soft risk appetite took their toll. Our global risk appetite index has slumped back to 44% from mid-week highs of 53%. The NZD/USD ended the week a little lower, at 0.7055, curtailing its June streak higher. The RBNZ will also be pleased to see the NZ TWI take a breather, ending the week, at 75.50, 0.7% below its post-RBNZ highs.
On the crosses, the NZD/AUD has consolidated after its meteoric rise last week. It ended the week at 0.9560. Technically, it could be argued there is still blue sky above this level. No doubt talk of parity, so popular in early-2015, might again become dinner party conversation.
‘Parity party’ bubbles may be back in the chiller. Still, we believe such talk would run well ahead of current fundamentals. In a note published on Friday, we discussed how fair value for the NZD/AUD currently sits around 0.92-0.93, even if differences in inflation expectations between the two countries is taken into account.
The NZD/GBP is also worth a mention. As the GBP remains under pressure, the NZD/GBP has the 0.5000 level firmly in its sights. The cross last traded above this level in April last year. It ended the week at 0.4950. The fate of this cross remains in the hands of the UK referendum which is now only ten days away.
Today, risk appetite (and by implication demand for AUD and NZD) may be determined by a cluster of China data releases due this afternoon.
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