NZDUSD still trading at the 0.73 mark; USD recovers losses resulting from Friday's jobs report; EUR lower as French Presidential candidate pledges to take France out of the euro-area; AUD sees selling pressure after weak retail sales figures

By Jason Wong

As locals return after the long weekend, they'll see the NZD is slightly stronger across the board from Friday's local close except against the yen.

While the USD has made some gains overnight, it has simply recovered losses seen after Friday's jobs report. That US employment report saw a combination of strong jobs growth and weak wage inflation, which slightly reduced the chance of the Fed hiking next month. After the jobs report, the Fed’s Williams (non-voter) said that from a risk management point of view there’s an argument to raise rates earlier, rather than later, but the USD was only temporarily affected by that remark.

So the NZD sits this morning around the 0.73 mark, some 30-odd pips above Friday's 5pm level, after testing 0.7330 in the early hours of Saturday morning, and that level proving to be an area of resistance overnight as well. Our fair value estimate sits at 0.7440, fuelled by higher risk appetite, as it flirts with a 2½-year high.

There has been little economic news overnight, but one story grabbing the headlines is political risk in Europe. Ahead of the French Presidential elections in April/May, National Front Leader Marine Le Pen gave a speech and pledged to take France out of the euro-area and recreate a new currency for France. The plan is also to create money to finance welfare, industrial strategy and to repay debt. The France-Germany 10-year bond spread reached a 4-year high and periphery bond spreads to Germany are also widening due to euro redenomination risks.

EUR/USD trades down 0.4% for the session, taking it to 1.0740, after earlier probing close to 1.07. NZD/EUR has breached 0.68 again. We've been running the line since late last year that 0.70 is under threat as European political risks regain the spotlight ahead of a series of national elections. In other euro news, in prepared remarks to Brussel lawmakers, ECB President Draghi maintained a dovish tone, preparing to “look-through” the recent oil related jump in headline CPI. He defended accusations of currency manipulation by US Trade advisor Peter Navarro, commenting that the ECB had not intervened in currency markets since 2011.

The AUD has seen some selling pressure after yesterday's soft retail sales figure. That sees NZD/AUD up to 0.9560, after it fell through 0.95 after Friday's local close. The RBA’s policy announcement is later this afternoon. The cash rate target has been held unchanged at 1.5% since it was cut to that level last August. Market pricing is consistent with no change in the cash rate all year, with a small chance of another easing in the first half of the year and a small chance of tighter policy by the end of the year. We can’t see the RBA changing its neutral bias at this meeting, so the announcement should be neutral for the AUD and rates market.

The yen is the strongest currency for the session, a likely reflection of the lower global bond yield environment. USD/JPY dipped just below the 112 mark early this morning and currently sits at 112.20.

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