By Kymberly Martin
The USD index continues to rise along with US yields. The JPY has been the most significant underperformer.
The AUD/USD and NZD/USD sit a little lower than at the start of the week, but overall have held up pretty well.
Overnight, the USD index poked its nose above the 100 level for the first time this year. US yield spreads to key peers have also widened in recent days, post the US election. For example, the US-JP 10-year bond spread has widened to 222 bps (from close to 180 bps), its highest level since January 2014. Since the start of the week the JPY has declined around 1.5% versus the USD. The USD/JPY now trades at 108.30.
The WTI oil price declined 2.6% overnight and the broad global CRB commodity index now sits almost 1% below Friday’s close. However, commodity-linked currencies such as the AUD, CAD and NZD held up fairly well. The exception was the oil-linked NOK, which has declined 1.2% versus the USD since the start of the week.
Helping support risk sensitive currencies such as the AUD and NZD is the fact that global risk appetite index is managing to hold-up, for now. In recent trading days our global risk appetite index (scale 0-100%) has been consolidating just below 60%. The AUD/USD has traded a fairly contained range between 0.7520 and on 0.7570 since the start of the week, currently at 0.7540.
The NZD/USD initially opened lower yesterday following the early morning earthquakes that shook much of NZ. However, it soon recovered, to touch above 0.7140 late yesterday morning. It has subsequently subsided to consolidate around the 0.7090 level overnight. Near-term support is eyed approaching the 200-day moving average at 0.7020.
NZ retail sales data will likely gain some attention when it is released, but it is delayed today. For Q3 volumes we are expecting a 0.8%q/q gain (not far from consensus). It’s not too difficult to imagine even more than that, given the strong labour and housing markets and booming tourism sector. However, we are wary that the previous quarter’s real expansion (2.3%) was the strongest in nearly 10 years.
In the early hours of tomorrow morning also look out for the latest GDT dairy auction. Given very strong recent price gains, if prices were simply to hold at previous levels, it would support an outlook for the milk price of at least NZ$6 per kilo. Aside from these events, direction of the NZD/USD will remain subject to sentiment toward the broad USD.
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