By Kymberly Martin
The USD has strengthened against its European peers. For idiosyncratic reasons the NZD and AUD have both declined since yesterday morning.
Overnight, equities provided modest losses on either side of the Atlantic and broad measures of commodity prices declined. However, overall risk appetite was relatively steady with the ‘safe haven’ JPY and CHF only modestly outperforming.
The USD gained as its European peers came under pressure overnight. The EUR/USD was on the back foot as July ZEW survey data showed a dramatic fall in expectations for the Germany and Eurozone economies. The EUR/USD has traded down from 1.1080 to 1.1010.
The GBP/USD enjoyed a very brief blip higher after UK core CPI data for June came in above expectation at 1.4%y/y. However, the market appeared to pretty quickly conclude that this would not be an impediment to the Bank of England cutting rates next month. The GBP/USD has subsided from 1.3230 last evening to trade below 1.3100 currently.
The AUD/USD fell yesterday afternoon on the release of the RBA’s July meeting Minutes. These had a more dovish tone than the previous month. The market will now look to next Wednesday’s Q2 CPI release to finesse its view on future RBA action. The AUD/USD traded down from 0.7560 to consolidate just below 0.7500 overnight.
The NZD/USD received an unexpected knock lower yesterday morning after the RBNZ released an unscheduled paper outlining proposed further LVR restrictions. As the market assessed these as providing the RBNZ with more leeway to cut the OCR (to address undershooting inflation) the NZD fell sharply.
From 0.7120 the NZD/USD found support at 0.7020 overnight. It currently trades at 0.7040. The flat result in the GDT dairy auction in the early hours of this morning prompted little discernable response from the currency. Technically, near-term support for the NZD/USD remains in the 0.6960-0.6990 window.
There are no local data or economic events scheduled for today. In the absence of any further surprises, the next challenge for the NZD will be tomorrow morning’s intra-meeting economic update from the RBNZ. The NZ TWI is still 6% above the RBNZ’s projected average for this quarter. We anticipate the RBNZ will make very clear that if this level sustains it will provide a serious impediment to achieving its medium-term inflation target. It’s hard to see the RBNZ’s update providing anything to support the NZD.
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