A modest risk-off feel has pervaded markets this week, with US markets down slightly after three down days in a row and much weaker Asia equity markets yesterday. This sees US 10-year yields continuing to drift lower. On the back of this mood, JPY is the top performer since yesterday morning, while the NZD is holding its ground, further signs that a decent support base has been found.
The biggest loser for the day has been a weaker CAD. The Bank of Canada left its policy rate unchanged, as expected, and while it maintained a tightening bias the Bank said that it “will continue to be cautious”. After the much stronger employment report last week, the market was anticipating a more hawkish tone. The market slightly pushed out its expected timing of the next rate, with April now looking more likely than March. USD/CAD and NZD/CAD are up in the order of 0.8% to near-1.28 and near-0.88 respectively.
The AUD came under pressure yesterday after the small miss on GDP, but it was the composition that got the market’s attention, with private consumption barely positive. The AUD fell 30pips to 0.7580 and has edged down further overnight, trading down 0.6% for the day to 0.7560. NZD/AUD regained the 0.91 handle, where it has met some resistance.
There have been more negative headlines on Brexit for GBP, with the coalition partner Democratic Unionist Party digging its toes in. It has a different idea on what the Irish border should look like after Brexit than what has been proposed so far. It’s looking tougher to get some agreement this week, which might delay EU/UK talks, pushing out the next more important phase of negotiations around a trade deal into next year.
EUR’s downtrend this month has continued, with positioning a more likely factor than fundamentals, EUR is trading at a 2-week low of 1.1790. NZD/EUR has met resistance around 0.5850 over that period, including overnight and currently sits this morning at 0.5830.
The USD is higher against all the majors overnight, but has struggled to make up its losses against JPY during local trading hours. USD/JPY is down 0.3% for the day at 112.25. ADP employment data were in line. Friday night’s employment report will be the next focus for the market, with a robust 195k increase in employment expected alongside a lift in average hourly earnings to 2.7% y/y (prev. 2.4%).
The NZD trades this morning at 0.6870, a similar level as at this time yesterday. It was well supported yesterday afternoon and met some resistance, again, last evening just over the 0.69 mark. Fonterra cut its milk payout from $6.70 to $6.40, a well-anticipated move. BNZ cut its projected payout to $6.30 several weeks ago. While the NZD has slipped since that announcement last night, a stronger USD was in the driving seat. QV house price data released this morning showed the first increase in annual house price inflation since January, up to 6.4% y/y.
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