Key event risks have markets in wait and see mode; BoJ expected to introduce meaty new additions to easing program; NZ service sector in good shape

By Kymberly Martin

The USD has weakened a bit against most of its peers over the past 24-hours, though most currencies have traded in a fairly orderly fashion. The NZD/USD spent most of the night a little way above 0.7300.

It was a night of reasonably light data flow. In addition the market is beginning to have that ‘wait and see’ feel about it ahead of the key event risks this week. i.e. the meeting of the Bank of Japan tomorrow and US Fed early Thursday morning (NZT).

General market risk appetite has stabilised. Our global risk appetite index has hovered just above 50% for the past couple of days. European equity markets also enjoyed a decent bounce overnight, although the S&P500 is currently flat.

The USD index now trades about 0.2% below its opening level for the week. The EUR and GBP both touched their intra-night highs early this morning. Subsequently they have given up much of their gain. From highs near 1.3090 the GBP/USD now trades back at 1.3020.

USD/JPY gapped below 102.00 last evening and has subsequently traded down to 101.70. The market now awaits the Bank of Japan’s meeting tomorrow. The market consensus appears to be for the Bank to announce some meaty further additions to its easing programme. No doubt the BoJ will be hoping this will lead to a weaker Yen. But memories are fresh of the Yen perversely surging in the days after the BoJ introduced a negative policy interest rate at the end of January.

In that episode NZD/JPY weakened. The BoJ has a history of disappointing market expectations and we’re not convinced a weaker Yen will necessarily follow this week, even if the Bank delivers further easing measures. Currently the NZD/JPY trades around 74.30, just above an area of support that has sustained for the past week or so.

The NZD/USD pushed higher from yesterday morning, reaching a peak in the early hours of this morning.

Yesterday’s domestic data (PSI and consumer confidence), confirmed that the NZ services sector is in very good shape and consumer confidence solid. The next test for the NZD will be tomorrow morning’s (early) GDT dairy auction. We look for another decent gain in price at this event in the backdrop of falling production in many key areas around the world.

A solid outcome may help to sustain the NZD/USD ahead of the potential for greater volatility later in the week, inspired by the meetings of the US Fed and RBNZ.

Currently the NZD/USD trades just above 0.7300. Near-term support is eyed on any pull-back toward 0.7200. Initial resistance will likely be encountered on a move toward 0.7360.

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