After a quiet week last week we’re on track for another one and it’s a struggle to write anything meaningful today. There have been only a few bits and bobs to report and that is reflected in modest market movements. Currency movements against the USD have generally been within 0.2%, with a notable exception being a soft yen. UST yields have nudged lower after some soft data.
The USD majors index is up slightly. It came under a little pressure following the release of softer than expected durable goods orders, but has since recovered. The data are volatile anyway and some weakness can probably be explained by businesses awaiting more concrete tax plans before committing to new investment. Earlier, Germany business confidence data measured by IFO rose to a fresh high.
In central bank speak, yesterday, the Fed’s Williams (non-voter) looked to side with Chair Yellen in his comments in calling for further gradual increases in interest rates, saying he expects inflation to rise to Fed’s 2 percent target next year as unemployment edges lower. NY Fed President Dudley was also on the wires, as was the ECB’s Draghi, but neither offered anything fresh to say.
The NZD is fairly flat hovering just under 0.73. The high over the last couple of weeks has been 0.7320 so that is in sight for the technicians. Overnight it reached 0.7310, but it settled back down. We reported yesterday on the high level of net long speculative positioning in the NZD that has recently emerged. This skews the risk to the downside on any negative news, although we can’t see much NZ-specific news over the next couple of weeks to drive it lower. The USD will remain in the driving seat.
The AUD and CAD have made small gains against the USD. Oil prices are up for the third consecutive day (again, less than 1%), although the recovery after the steep fall over the past month has been fairly modest to date. AUD is up to around 0.7585, leaving NZD/AUD around 0.9610.
In the UK, the long-awaited deal between the Conservatives Northern Ireland’s Democratic Unionist Party has finally been signed, which allows the new government a slim working majority. This was well anticipated and GBP remains steady at 1.2715.
The only point of interest in currency markets is the underperformance of the yen against a trend of slightly lower global bond rates. Normally, lower rates put upward pressure on the yen. The yen’s correlation with UST rates might well be reducing. USD/JPY is up 0.6% to 111.90 and the yen’s underperformance sees NZD/JPY up to 81.5.
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