USD retreats to Friday's levels alongside US yields; GBP strongest performer, up 0.9%; NZD/USD trades up to the 0.7200 level

USD retreats to Friday's levels alongside US yields; GBP strongest performer, up 0.9%; NZD/USD trades up to the 0.7200 level

By Kymberly Martin

The USD gave back most of Friday night’s gains yesterday. European and Australasian currencies benefitted, and even the JPY has managed to fight back.

The USD index attempted to take Friday night’s positive momentum into the start of this week. However, it soon petered out. The USD has drifted lower in the early hours of this morning alongside declines in US yields. The USD index now trades back at Friday’s lows.

European currencies have been key beneficiaries, with the GBP enjoying the opportunity of being the strongest performer against the USD. It has gained around 0.9%, to trade just below 1.2700 at present.

Tonight, UK CPI and house price data are due, as indicators of the current inflationary pressures in the UK economy. The expectation that recent GBP strength will, with time, feed through to higher UK CPI inflation, has been a key reason for the market nearly eliminating expectations for further BoE rate cuts. The market now prices a 50% chance of a BoE hike by early 2018. The BoE will provide the latest update of its views at its meeting on Thursday.

The JPY was again under pressure last evening. The USD/JPY briefly traded above 116.00. However the JPY has made a comeback in the early hours of this morning, to now trade just above 115.00.

The NZD/USD has been on a steady upward path since early yesterday afternoon. It now trades at 0.7200. A break through this level will open the way for an initial move back toward 0.7260. Near-term support remains at the 200-day moving average of 0.7060.

The recent improvement in global risk appetite (at 70% our global risk appetite index is at its highest in two years), has raised our short-term fair value for the NZD/USD to 0.7320. We see the risk of further NZD appreciation into year-end, even as we still see the prospect of NZD/USD depreciation next year as USD strength returns.

The AUD/USD has also strengthened since the start of the week, to now trade at 0.7500. Today, a handful of China data releases are due. These have fallen out of the spotlight as China growth concerns have diminished as this year has progressed. However, they maintain the ability to colour sentiment toward the AUD and to a lesser degree the NZD. However, the local data highlight for the AUD remains Thursday’s AU labour market report.

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The recent improvement in global risk appetite (at 70% our global risk appetite index is at its highest in two years)...

Let's hope it can at least be swallowed, if not digested.

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