Currency movements have been modest in thin trading conditions. The US dollar is marginally lower, with the DXY Index down about 0.2% on the day but sitting comfortably within recent ranges. Reports of progress in the NAFTA trade negotiations across some sectors sent the Mexican Peso to the top of the leaderboard, with the MXN up 1.1% against the USD. The CAD rose a more measured 0.4%.
AUD remained under downwards pressure yesterday, with the RBA Minutes offering nothing new, but the currency found some support following last night’s speech by RBA Governor Lowe. While acknowledging that the subdued outlook for inflation means there is no strong case from a near term adjustment to monetary policy, the Governor noted that ‘if the economy continues to improve as expected, it is more likely that the next move in interest rates will be up, rather than down’. This arrested the AUD’s recent decline. From just above 0.7530 before the speech, AUD/USD rose swiftly to 0.7580, a level which it has since oscillated around. Further support may come from what we think will be a very strong print in today’s AU Construction Work Done figures helped by two major imported LNG facilities. But interest rate differentials are pulling the other way, indicated by the US 2-year swap rate pushing above its AU equivalent overnight.
NZD broadly followed the AUD higher after Lowe’s speech. NZD/AUD briefly dipped under 0.9000, but recovered to currently sit little changed around 0.9010. This saw NZD/USD push up to around 0.6840 overnight, having dipped below 0.6800 yesterday. NZD/USD currently sits around 0.4% higher than yesterday’s local close, at around 0.6830. The NZD pushed higher despite another poor GDT dairy auction where average prices fell 3.4%. The latter reinforces downward pressure on Fonterra’s current $6.75 milk price forecast.
The mild bounce in the NZD sits more comfortably with the prevailing positive risk undertone and the fact that the recent NZD weakness has been a little difficult to explain. We wouldn’t overplay it, but seasonality might be a factor in the NZD’s recent lacklustre performance. NZD/USD has fallen in 9 of the last 10 Novembers. Historically, December is a much better month. NZD/USD support remains around 0.6780.
On the other crosses, the NZD is marginally higher against the GBP, EUR, and JPY. Despite the mild lift in the NZ TWI, it currently, at 72.55, sits more than 1% below that forecast by the RBNZ in its Monetary Policy Statement.
GBP has held onto recent gains on some confidence that the UK government will manage to agree a divorce bill with Europe. UK Chancellor Hammond announces his Budget on Wednesday as Brexit preparations and negotiations continue. Last weekend, Hammond suggested the government might be about to improve its offer on the Brexit divorce bill. GBP/USD traded a tight range overnight and sits unchanged around 1.3240, while 10-year gilts eased almost 2bps to just over 1.27%.
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