By Kymberly Martin
The USD has declined against most of its peers. The NZD and AUD have been beneficiaries, but the strongest performer has been the NOK.
In the backdrop of modest negative returns from equity markets and a 1.8% decline in the WTI oil price, the USD has continued to trade a generally declining trend since yesterday morning.
The market remains reluctant to price further Fed hikes any time soon. Only 11bps are priced by the end of the year.
Meanwhile the NOK has been the strongest performer over the past 24-hours. It gapped higher on the release of Norway’s July CPI data last evening. This showed core inflation well above expectation at 3.7% y/y. This is a rare upside surprise for inflation data globally, though Norway’s series has been tracking steadily higher since 2013. The NOK has risen about 1.7% against the USD, to trade at 8.2640 this morning.
The beleaguered GBP was one of the few major currencies unable to hold onto any gain versus the USD overnight. The GBP/USD traded above 1.3080 early this morning but has subsequently slumped back to 1.3000.
The JPY strengthened yesterday morning before consolidating overnight. The USD/JPY continues to flirt with the bottom of its post-‘Brexit’ range. It trades at 101.30 currently.
The NZD/USD has traded higher over the past 24-hours. However, it was unable to push on from the early hours of this morning. It poked its nose above 0.7260 before returning to 0.7230 currently.
The market now awaits the RBNZ. It more than fully prices a 25bps cut today. It prices a total of almost 70bps of OCR cuts within the year ahead.
Therefore if the RBNZ delivers a 25bps cut today but the market does not view its commentary as sufficiently dovish, the NZD/USD could experience a knee-jerk bounce.
Even if the RBNZ were to deliver a 50bps cut today (not our central view) we are doubtful it would have an enduring dampening effect on the NZD/USD.
Rather, relative economic fundamentals, global risk appetite and evolving expectations for the US Fed will likely remain dominant drivers.
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1 Comments
The market remains reluctant to price further Fed hikes any time soon. Only 11bps are priced by the end of the year.
Difficult, to say the least, when the FHLBs are the only participating US entity supplying liquidity to this now moribund indicator of money cost.
But in the real world it's excitement and rising risk, and for much as it matters our local banks' foreign wholesale funding costs are on the move, upwardly.
Though the media rushes to defend it as benign but prudent regulatory changes, there is going to be fallout from rising LIBOR “tightness.” And it will likely start where it can be least afforded, especially after last year’s rout. Read more
You really don’t need to know much about the repo market or its technical operations and conditions to figure this out. There are only two dots to connect – high levels of dealer holdings of coupons and repo fails. The correlation is as obvious in the charts above as it is in plain common sense. Dealers, the bedrock of the global monetary system, are hoarding collateral and it shows. That, however, doesn’t fit within the recovery narrative, so the media resorts to the easy and absurd to obscure what “should” not be happening. Read more
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