The USD was stronger across the board for a second day running. The Bloomberg DXY was around 0.5% higher, and is now approaching the upper end of the trading range it’s been in since late January. The rise in US yields probably helped the USD on the day, although the relationship between the USD and interest rate differentials has become increasingly unhinged since late last year.
The EUR fell below 1.23 on Friday, a two week low, with media reporting that ECB members were considering waiting until July to change their forward guidance on QE. According to the sources, some ECB members reportedly wanted to wait for more evidence that the economy was recovering from its recent soft patch of data. Speaking in Washington, ECB President Draghi acknowledged that “the growth cycle may have peaked” but said “growth momentum is expected to continue” and reiterated his confidence inflation would eventually move to target. The European PMIs this week take on more significance than usual given the recent slowing in European data.
Commodity currencies were among the worst performers on Friday, with the NZD down almost 1%, the weakest currency in G10. The decline in equities and modest increase in risk aversion may have played a part (the JPY and Swiss franc were the outperformers on the day). We have also been highlighting the build-up in net long NZD positions among speculative investors, which may have contributed to the NZD’s underperformance over recent days. Governor Adrian Orr has been speaking to several media outlets over the weekend on a range of topics, but besides reiterating the Bank’s continued forward-looking focus on the 2% CPI mid-point, hasn’t given too much away on his monetary policy intentions.
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