NZD is about 0.7% weaker than it was this time yesterday, trading at 0.6840 USD; EUR and GBP have outperformed; month-end flows seem to be dominating USD moves

By Jason Wong

Overnight, the NZD has sustained the fall seen after yesterday’s ANZ business outlook survey.  Some month-end buying pressure sees EUR and GBP higher.  US 10-year yields have nudged up through the 2.40% resistance level.

The swoon we saw in IT stocks yesterday proved to be a one-day affair, as their rebound has helped push the S&P500 up over 1% to a fresh record high. A Senate vote on the tax bill is due later this morning with debate still raging on.  Senator McCain approves the bill but there remain a number of hold-outs.  Newsflow on progress of the vote and month-end flows seem to be dominating USD moves.  The various USD indices are currently flat for the day after swinging around a bit.

The NZD is about 0.7% weaker than it was this time yesterday, with the fall confined to the aftermath of the recorded slump in business confidence.  Overnight the currency has been tightly range-bound and sits this morning at 0.6840.  There was some sticker shock from the poor result, but it wasn’t entirely unexpected, as it is normal for confidence to shift down to an enduring lower plane under a Labour government.  Indeed it wouldn’t surprise if confidence remained in negative territory for the full term of government.  The PMIs are a better read on activity (released earlier this month) and they showed business-as-usual.  The rates market was little moved by the result, with one eye on the chunky increase in inflation indicators. The NZD’s move revealed more about short-term positioning than anything else.

EUR and GBP have outperformed with traders reporting month-end flows dominating. EUR fell to as low as 1.1810 after weaker than expected inflation data.  The euro-area unemployment rate fell to a 9-year low of 8.8%, better than expected, but headline CPI inflation edged up to only 1.5% y/y while the core rate was steady at just 0.9%.  Those figures must frustrate the ECB, as it over-stimulates the economy with its rates-suppressing measures but makes little headway in achieving its inflation target.  Month-end flows have helped pushed EUR higher, reaching over 1.1930 but since slipping to just below 1.19.  NZD/EUR is back probing the 0.5750 level, with the multi-year low of 0.5744 level reached a couple of weeks ago holding, for now.

GBP got a boost after The Times reported that Dublin and London are close to an agreement on the Irish border, moving closer to a Brexit deal.  But Bloomberg reports that talks on the Irish border issue are struggling on and highlights the intractability of such a deal.  Solving that puzzle paves the way for the UK and EU to begin trade talks which is when the real Brexit negotiations begin.  The market is taking an optimistic stance, pushing GBP up to a 2-month high near 1.3550 this morning, before slipping back below 1.35.  NZD/GBP fell to its lowest level since the Brexit referendum and sits this morning at 0.5070.

Overnight, NZD/AUD has drifted a little higher as the AUD has softened, but at 0.9050 is still 50pips lower since the ANZ survey. A weaker JPY overnight sees NZD/JPY almost fully making up its post-survey losses to sit around 77.0.

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