There’s been plenty of economic newsflow to digest but not a lot of price action, with traders reporting subdued flows. The NZD is up on all the crosses for the day, despite slipping slightly overnight. US 10-year yields are down slightly.
The NZD rose 40pips after Acting Governor Spencer’s speech early afternoon, where he delved into the topic of low inflation and its implications for monetary policy. The policy message was that the Bank had become more flexible in its inflation targeting approach, with Spencer commenting that “…in pursuing our long term price stability objective, relatively more weight is being attached to output, employment and financial stability.” Buried in the speech we detected an asymmetric bent towards current policy. Spencer included a scenario which might lead to higher rates. For balance, a scenario that could lead to lower rates was also given, but the Bank would have to be careful “not to generate unwarranted instability in output, the exchange rate or indeed household debt”. It revealed a slight hawkish bias, as implicit by the Bank’s projected rate track at the last MPS.
The NZD met some resistance just over the 0.69 mark and has slipped in overnight trading to around 0.6875, still safely within the approximate 0.68-0.70 range the currency has traded in for the last six weeks. The GDT dairy auction was in line, showing a modest increase in pricing and breaking the run of four negative auctions. We’re closely monitoring possible drought conditions developing in NZ, which could lead to higher pricing ahead, but at the expense of much weaker volumes. Dairy production already seems to be restrained, as conditions are dry, and in some areas cows face heat-stress.
Higher than expected Australian retail sales gave the AUD a boost yesterday and the rally continued a little after the RBA’s policy statement, although the message was little changed, as expected. The AUD found the air thin above 0.7650 and has since unwound nearly all of those gains to sit back around 0.76, not helped some weakness in metal prices, including a 4% fall in copper and gold prices down about 1%. NZD/AUD is up slightly to 0.9045.
The USD has made some ground against EUR, GBP and JPY, despite weaker than expected data, with the US trade balance widening to a 9-month high and the ISM non-manufacturing index slipping further than expected, albeit from a high level. EUR has trended lower since last night and sits this morning at 1.1810. NZD/EUR is up 0.7% for the day to 0.5820.
GBP has had another rollercoaster session, lurching down as low as 1.3370 before recovering to 1.3440. There have been a number of headlines on Brexit issues hitting the screens, with the Irish border issue the key focus at present. This saga has a few more days to run yet. NZD/GBP is up about 0.5% to 0.5120.
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