The week has begun with a reversal of Friday’s price action, with the USD recovering losses, the NZD lower, higher global bond rates and higher equity markets.
As we reported yesterday, ABC news retracted its story that former US National Security Adviser Flynn was prepared to testify against the President. This helped reverse the moves seen on Friday from the get-go on the market open, allowing the market to focus more on the tax reform bill. After Friday’s close the Senate voted for the bill which sees it move to the reconciliation phase, before final sign off by the President, with the aim of getting that done and dusted by Christmas.
This has seen a broadly based recovery in the USD, taking to back to the level seen before its shift down on Friday. Overnight moves have been fairly modest, with most of the action occurring during local trading hours. The NZD opened weaker and trended lower, seeing further modest slippage overnight and trading close to its session lows around 0.6840.
The tone of Acting Governor Spencer’s speech early-afternoon might well determine how the NZD fares today. The title of the speech is topical, “Low inflation and its implications for monetary policy”. Many central banks have been grappling on why inflation hasn’t materially picked up this cycle so far and NZ finds itself in the same position. The question is whether new structural forces are in play this cycle which changes the policy reaction function. It’s an interesting debate which the Governor will be wading into. In tonight’s GDT dairy auction we might see an end to the run of falling prices. The odds slightly favour an increase in average prices after falling in each of the past four auctions.
Elsewhere GBP has had a volatile session as traders anticipate the next move on Brexit negotiations. A headline last night of UK negotiator Barnier saying “we are headed” for a deal saw the GBP move 100pips higher to near 1.3540, but that proved to be a head-fake. A few hours later EC President Juncker said that it was not possible to reach a complete agreement today. This has seen GBP back down to around 1.3460. The stumbling block to progress talks on Brexit and move towards negotiating a trade deal continues to be the dispute over the Irish border. He added that he was still confident that they could reach sufficient progress before the mid-December EU summit with UK PM May also spinning a positive tone. NZD/GBP is near the local close yesterday around 0.5090.
JPY jumped higher on Monday’s open but has range-traded since, finding resistance near the 113 mark. The NZD is down on most of the crosses, but much of this occurred during the local session, with not much more progress overnight.
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