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Commodity currencies remain generally out of favour; NZD/USD did push up toward 0.6840 after the local close yesterday, but drifted back with USD strength overnight; EUR has been on its own mini roller coaster at the start of the week

Currencies
Commodity currencies remain generally out of favour; NZD/USD did push up toward 0.6840 after the local close yesterday, but drifted back with USD strength overnight; EUR has been on its own mini roller coaster at the start of the week

By Doug Steel

Risk sentiment saw some improvement overnight with US equities showing modest gains and US yields a touch higher. The VIX fear index has pulled back under 11 for the first time in over a week. Currency movements have been generally subdued, with limited data on offer.

EUR has been on its own mini roller coaster at the start of the week following yesterday morning’s news of a breakdown of coalition talks in Germany. Acting German Chancellor Angela Merkel declared the four-party discussions had failed. The pro-market Free Democratic Party walked out of the talks, saying that differences with the environmentalist Green party were too great to bridge.

From just under 1.1800 early yesterday morning, EUR/USD fell swiftly toward 1.1720, before rebounding all the way back, and even above 1.1800 in the early evening, as near term shorts were squeezed. Overnight, EUR selling returned. The German President, Steinmeier, urged parties to find a deal to avoid going back to the polls. Merkel said she prefers new elections over a minority government, but also that she is open to a grand coalition. It all clouds the near term EUR outlook.

Meanwhile, comments from ECB President Draghi to the EU Parliament did the EUR no favours stating ‘despite a firm economic recovery, inflation dynamics have yet to show convincing signs of a self-sustained upward trend’. EUR/USD currently sits around 0.4% lower, at around 1.1750.

Elsewhere, currency movements were limited. JPY tried to push higher yesterday as risk sentiment was initially dented by German politics. USD/JPY briefly dipped below 112.00, but has pushed higher overnight as risk sentiment improved. USD/JPY opens this morning around 112.50. Combined with a weaker EUR, this saw the US dollar firmer with the DXY Index up around 0.4%. A US leading index rose 1.2% in October, supporting sentiment as it beat expectations of a 0.8% gain.

Commodity currencies remain generally out of favour as oil prices slipped around 1%. AUD, CAD, and NOK have all started the week a little on the back foot against a firmer USD. AUD/USD is currently testing lows around 0.7550, despite a lift in iron ore prices.

NZD/USD did push up toward 0.6840 after the local close yesterday, but drifted back with USD strength overnight. NZD/USD currently sits around 0.6810, not far from this time yesterday. A weaker EUR has helped NZD/EUR recoup at least a small amount of last week’s losses. NZD/EUR currently sits around 0.5800, up from last Friday’s low of just under 0.5750. NZD/AUD is broadly unchanged at around 0.9020 and remains close to our short term fair value estimate.

There doesn’t look to be much on the calendar to disturb markets in the day ahead. RBA Governor Lowe’s speech tonight will be worth a look while some stabilisation in dairy auction prices overnight may offer a modicum of support to the NZD.

 


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