NZD at 0.7300 after trading in a 1% range, volatility stemmed from FOMC announcement and concerns over cattle TB outbreak; USD down 0.5% post-FOMC and reports of Trump's phone call with Australian PM; GBP down 0.9% against weak USD

By Jason Wong

The USD continues its weak run, a dovish BoE sees GBP weaker, and strong trade data has boosted the AUD.

The USD weakened slightly after yesterday morning’s FOMC announcement. The Statement was little changed from December, with a marginal firming in language at the margin. The change in language was deemed too subtle for some expecting a clearer nod towards a possible March tightening. The USD fall extended yesterday with Trump returning to the spotlight, as reports came through of him agitating Australia's PM during a one-on-one phone call. It is yet another example of Trump burning bridges with world leaders, which is unlikely to serve the US well in the future. Momentum early this morning is one of the USD trying to recover some lost ground. The USD major currency TWI is down circa 0.2% for the NY trading session, which cumulates to about 0.5% adding in the fall post-FOMC.

GBP is even weaker, falling about 0.9% to 1.2550 against a soft USD. The market was expecting a more hawkish tone alongside the BoE's policy announcement, but Governor Carney didn't deliver on that. Inflation forecasts were lowered a touch on the basis that there was more slack in the economy than previously thought. Market pricing for a 2017 rate hike slipped to about 1 in 3 from an even chance, with August 2018 now the first date with a full hike priced in.

The other significant currency mover was the AUD, which jumped higher following much stronger than expected trade data and pushed higher thereafter. Resistance was met just under the 0.77 mark and it currently sits at 0.7670. The move was likely inflated by traders being caught offguard, as the surge in commodity prices like coal and iron ore has been well observed over recent months so the boost to Australia's trade balance should not have really surprised. NZD/AUD trades down at 0.9515 this morning.

NZD/USD has traded a nearly 1 cent range over the past 24 hours. After a ½ cent boost to 0.7290 following the FOMC announcement, it lost all of that gain after a report came through of a TB outbreak of cattle in Matamata. It was later confirmed that the outbreak was confined to a single farm, seeing the NZD bounce back. After making further gains last night the kiwi is back down to around 0.73, a similar level to the local close.

The soft USD saw EUR break up through the 1.08 mark, a level it hasn't achieved since early December. USD/JPY found support just above 112 and now sits at 112.70.

Get our daily currency email by signing up here:

BNZ Markets research is available here.