NZD has traded in a tight 0.7150-0.7250 USD range for much of the past week and currently sits near the bottom of that range; NZDAUD dropped to around 0.9140; GBP was on the soft side

By Jason Wong

In a day of where most market movements have been microscopic, the NZD has underperformed after a weaker than expected dairy auction.

The NZD has traded in a tight 0.7150-0.7250 range for much of the past week and currently sits near the bottom of that range, not helped by a softer than expected GDT dairy auction overnight.  Average prices fell by 2.4% making it the weakest auction in over six months. The result included a 2.7% fall for whole milk prices, going against the grain of a decent recovery in NZX dairy futures pricing.

More in line with expectations, QV house price data were released this morning showing prices up 4.3% y/y%, the slowest annual rate since mid-2012.  QV reported that the normal spring surge in listings hadn’t eventuated, and a lack of supply has helped insulate market from more significant falls.  Yesterday’s QSBO data showed that while business confidence slipped a little ahead of the election, activity indicators, capacity and pricing indicators all remained firm.

As long as risk appetite remains very high, it’s hard to see the weakness in the NZD being sustained for too long.  US equities continue to probe fresh highs, while the VIX index remains near historical lows.  Consumer discretionary stocks led by Automobiles are higher, after a number of US car manufacturers reported better sales than expected, supported by replacement buying after the hurricanes.

NZD/AUD was stuck in a very tight 0.9175-0.9195 range for much of yesterday, but after the GDT dairy auction results came through it dropped to around 0.9140. The AUD itself fell 30 pips or so after the RBA maintained its neutral policy stance.  Some hawks in the market clearly anticipated a firmer outlook statement but, like the RBNZ, the RBA is in no hurry to guide policy rates higher.  The AUD has recovered overnight which sees it flat for the day around 0.7830.

GBP is on the soft side, after the UK construction PMI fell by much more than expected to a contractionary level.  Furthermore, Bloomberg reports that the UK government is growing increasingly concerned that it could crash out of the EU without a trade deal.  EU Chief Brexit Negotiator Barnier and EC President Juncker said Britain must give more details about what kind of divorce terms it is willing to accept – particularly on the financial settlement – before talks can begin on trade.   GBP is down 0.2% to 1.3245, while the underperforming NZD sees NZD/GBP down to 0.54.

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