Weak electronic card transactions and ANZ inflation gauge saw the NZD fall to 0.7202 USD prior to recovering to 0.7240 as the USD weakened; USD lower as emails suggest that Russian government helped Trump campaign; EURUSD rises to 14-month high

By Jason Wong

The USD is under pressure this morning following some damning headlines for Trump’s team, and that has reduced the damage to the NZD seen over the past 24 hours.  EUR has been the key beneficiary.

In yesterday’s daily it was tough to string a meaningful sentence together, as nothing happened, but we did manage to slip in that Trump was in the headlines again regarding his team’s conversations with Russian officials prior to the Presidential election.  That didn’t excite the market, but the story has now developed further, with Donald Trump Jr. releasing emails suggesting that the Russian government was trying to help Trump’s election campaign.   The S&P500 slipped as much as 0.6% on the news, but has since recovered to trade square.  The USD majors index was on a modest upward trajectory, before falling 0.3% on the news and has yet to recover and sits 0.2% lower for the day.

EUR has been the key beneficiary of the US political news, rising to a fresh 14-month high of 1.1475 and sees NZD/EUR fall to just above 0.63.  Now seems a good time to reiterate one of our highest conviction views, of NZD/EUR heading sub-0.60 before the end of the year.  And an upgrade to EUR earlier this week sees NZD/EUR falling to as low as 0.56 through next year.

The NZD came under pressure yesterday following the release of soft electronic card transactions data for June, followed by a soft reading for the ANZ monthly inflation gauge.  While normally those monthly releases would be ignored, we’ve previously mentioned the skewed downside risk to the NZD, with speculative positioning data suggesting the highest net long positions in four years.  The softer data provided good cover to reduce those positions, and that saw the NZD fall from around 0.7270 to a low of 0.7202 early this morning.  The Trump headlines have helped drive a reversal, with the NZD now back near the local close, approaching 0.7240.

NZD/AUD is down nearly 1% for the day to 0.9475 as soft NZ data coincided with another strong reading from NAB’s business survey, which showed the best conditions in a decade.  In the background, iron ore prices have been steadily increasing as well and are now back to a 2-month high.

Alongside the soft NZD, the only two other major currencies to be weaker against the USD for the day are GBP and CAD. GBP is down 0.2% to 1.285 while USD/CAD is up 0.2% to 1.2920 even as oil prices are up 1½%.  The BoE’s Broadbent offered a cautious tone about the UK’s economic outlook under Brexit, signalling the negative implications for trade, and the market seemed disappointed that he didn’t add to the growing hawkish chorus within the BoE on monetary policy.  Meanwhile, CAD’s weakness can be explained by some profit-taking ahead of the Bank of Canada’s policy decision tonight.  The probability of a rate hike has slipped from 95% to 90% over the past couple of days and a number of economists are calling for no change (9 out of 31 analysts surveyed by Bloomberg).

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