Aussie dollar helped by commodity rally; US non-manufacturing PMI gives USD much needed boost; GBP on slippery downward slope; global sentiment driving NZD

By Kymberly Martin

The GBP is again the weakest performer over the past 24-hours. The NZD/USD has consolidated yesterday’s modest fall while the AUD/USD has strengthened.

The GBP/USD has declined further, but with most of the fall occurring yesterday afternoon, taking the currency toward 1.2800. It has subsequently rebounded to trade at 1.2930 currently. Headlines overnight announced that a further three UK property funds suspended redemptions. Six funds have now frozen redemptions, with clear risks of further contagion.

The USD was on a subtle decline through the evening, but gained a boost in the early hours of this morning around the time the US non-manufacturing PMI was released. This came in well above expectation, at its highest level since November. However, the employment component of the index was not as strong as the headline. This argues against expecting too much from Friday’s US payrolls data. The USD index has now returned to the level it traded late last evening.

The JPY strengthened throughout the evening. The 100.00 level on the USD/JPY was within spitting distance. However, it has subsequently returned to trade at 101.20. Today the Bank of Japan’s Governor, Kuroda, is scheduled to speak. The recent strength of the JPY plays into a familiar dilemma i.e. How to reach an elusive inflation target when the currency and global structural factors push in the opposite direction.

The AUD/USD has recovered much of the previous day’s fall. A better tone in commodity markets overnight likely helped. The CRB global commodity index has risen more than 1% from yesterday morning’s level. The AUD/USD has traded up from 0.7410 to 0.7500.

The NZD/USD declined yesterday afternoon, but has consolidated overnight. It now trades around 0.7120, only slightly below yesterday morning’s level.

Global sentiment will likely remain the predominant force on the NZD/USD into weekend, with tomorrow night’s US payrolls data particularly important. However, look out for a scheduled speech from the RBNZ’s Deputy Governor this evening (see Interest Rates).

On the crosses, the most notable move has been for the NZD/AUD. This cross has traded down from 0.9580 to 0.9490 over the past 24-hours. This is slightly above our model-derived ‘fair value’ which sits around 0.9200. However, our forecasts see the cross broadly in a range around the mid-90s in the months ahead.

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