sign up log in
Want to go ad-free? Find out how, here.

USD held on to its gains seen earlier in the week; NZD was up 0.5% to 0.7255 USD, reducing its loss for the week to just 0.6%; GBP was the worst performer

Currencies
USD held on to its gains seen earlier in the week; NZD was up 0.5% to 0.7255 USD, reducing its loss for the week to just 0.6%; GBP was the worst performer

By Jason Wong

In the currency market, the USD held on to its gains seen earlier in the week and was relatively flat for the session.  Currency market volatility remained modest, considering the turbulence seen in equity markets.  GBP was the worst performer as Brexit headlines were in focus and weaker than expected UK industrial production and trade data didn’t help. The EU’s chief negotiator Barnier warned that a Brexit transition deal was “not a given” if disagreements with the UK persisted. He also pointed out that come Brexit day the UK will leave behind some 750 international agreements the EU has struck on behalf of its member states on the date of the withdrawal.  Our view remains that the UK government will deliver on a transition deal out of self-preservation, for if a transition deal is not agreed to, the government would likely fall.  GBP fell by 0.6% to 1.3825, while NZD/GBP rose by 1.1% to 0.5245.

The NZD ended the week on a positive note, being the strongest of the majors for the session, highlighting that this isn’t an ordinary bout of risk appetite reduction we’re seeing.  For the day, the NZD was up 0.5% to 0.7255, reducing its loss for the week to just 0.6%.  Our risk appetite index has fallen below the neutral 50% mark for the first time in eighteen months, after spending much of that time well above that mark.  Over the last two weeks the index has plunged from a lofty 85% to 48% and over that time only 1 cent has been shaved off the NZD, compared to our model which suggests that the NZD “deserved” to fall by 3½ cents.  This highlights how the market sees the current risk-off episode as largely an issue confined to the equity market, perhaps a reflection that share prices were just simply over-cooked, and has little to do with changed expectations about the global growth outlook.

The RBA said in its Statement on Monetary Policy that the economy was way-off full employment and inflation returning to the mid-point of the target, signalling policy will stay on hold.  This was a familiar refrain and there was little reaction for the AUD which, like the NZD, ended the week on a positive note.  NZD/AUD met some resistance just above 0.93 and closed the week around 0.9285.

Canada saw a record drop in part-time employment that coincided with a 20% increase in the Ontario minimum wage.  It’ll be worth monitoring that province closely, as NZ’s minimum wage is set to go up by more than amount, albeit spread over four years.  The soft employment, higher wages combo only saw some passing volatility in CAD, while another 3% sliced off oil prices didn’t help sentiment.  NZD/CAD ended the day up 0.4% to 0.9130.

The economic calendar is light over the next 24 hours, but that won’t necessarily prevent any further market volatility, something we’ll be keeping a close eye on.  In the coming week the key focus will be US CPI data on Wednesday night NZ time.  Another positive surprise of 0.3% m/m for the month for the core measure could send bond yields higher and equity markets (and the NZD) lower.  


Get our daily currency email by signing up here:

Email:  

Daily exchange rates

Select chart tabs

Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
End of day UTC
Source: CoinDesk

BNZ Markets research is available here.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.