Market movements have been modest although there is still a notable grind up in the NZD, supported by a better risk backdrop.
Tensions around Syria were diffused a little after President Trump tweeted that “Never said when an attack on Syria would take place. Could be very soon or not soon at all!”. US defence secretary Mattis said that there were non-military options available to the international community, while Russian leaders urged calm and reined in their own war rhetoric. These developments have supported risk appetite a little and, additionally, speaking to lawmakers, Trump sounded more optimistic on the US-China trade situation, buoyed by President Xi’s speech earlier this week. He said that the two countries ultimately may end up levying no new tariffs on each other.
US equities are up around 1% as the market focuses on the earnings season ahead and this was kicked off by a good result from Blackrock. The VIX index has retreated to the lowest level seen this week, below 19. The better risk environment has imparted an upward bias to UST yields, with the 10-year rate on an upward trend to 2.83% overnight, up 5bps from the NZ close.
Currency movements have been modest, with the notable mover being a 1% fall in SEK, after underlying CPI inflation in Sweden came in below market expectations, with the ex-energy measure coming in 0.3% below the Riksbank’s forecast. The lack of inflation in Sweden highlights the futility of central bank policy of negative rates, quantitative easing, and driving one’s currency lower when ultimately the weak inflation backdrop reflects a common global force.
Stronger risk appetite sees the NZD continuing to grind higher, up to 0.7380 and reaching a high overnight of 0.7389. The key resistance level is 0.7440, a level it has failed to break on three occasions dating back to September. The NZD has outperformed other commodity currencies, with NZD/AUD sustaining the rise above the 0.95 mark we saw through Asia trading and NZD/CAD retesting the 0.93 handle. It seems that the government’s new policy to restrict NZ’s oil exploration industry and threaten thousands of high-paying jobs hasn’t had a negative impact on sentiment. NZ electronic card transactions spending data were stronger than expected but that release is typically ignored by the market.
The NZD has made its best gains against the safe-haven JPY and EUR, up through 79 and approaching 0.60 respectively. Euro area industrial production unexpectedly declined for the third consecutive month, continuing the run of softer activity data from the region. ECB minutes of its last meeting showed that possible US import tariffs and unforeseen consequences of UK’s Brexit were threats to the economic outlook, which Draghi alluded to in his speech yesterday.
Get our daily currency email by signing up here:
BNZ Markets research is available here.