By Kymberly Martin
USD strength has been the resounding theme of the past 24-hours. Without exception, major currencies now trade notably lower relative to the USD.
The US FOMC has been the primary driver of currencies. Its less dovish projections (see Interest Rates), immediately catapulted the USD higher, yesterday morning. The upward momentum was maintained last night. All of its peers suffered.
European currencies and the NZD have been the underperformers, while the CAD and AUD have held up relatively well. The decline in the EUR/USD overnight has taken the common currency back to its lowest level since January 2003.
The equity market is proving resilient to the recent sharp rise in US long yields. The S&P500 has added a further 0.6% overnight. The market is choosing to run with the implied positive growth signal from higher yields, rather than be deterred by the threat of higher interest costs (and discount rates). While interest rate sensitive sectors (such as real estate) are underperforming, this is being more than offset by strong performance from cyclical growth sectors and financials.
The AUD has held up better than some of its peers. After a sharp step lower early yesterday morning, the currency experienced a bit of volatility around the release of the November AU employment report. This showed a tick-up in the unemployment rate, but employment growth well above expectation. Our NAB colleagues believe it is important not to be deceived by the strength of the employment headline as QLD accounted for all the employment growth in the month (and may be due to sampling volatility).
Still, the data appeared enough to allow the AUD/USD to recover some composure yesterday afternoon, before a more gradual descent overnight. It now trades at 0.7360.
As a result of this relative strength the NZD/AUD has traded lower. After the AU employment report the NZD/AUD slipped from 0.9600 to 0.9560, the level where it now trades.
The NZD/USD has succumbed to USD strength. From 0.7200 prior to the USD FOMC announcement, the currency now trades at 0.7050.Having broken through the 200-day moving average at 0.7068 the next line of support sits at 0.6950-0.6970. This has marked range-lows since June.
Get our daily currency email by signing up here:
BNZ Markets research is available here.