It was a reasonably quiet end to the week, with the S&P500 edging out a small gain and closing at its highest level since February. Ahead of the NZ CPI release tomorrow, the NZD was the weakest performing G10 currency. Offshore, there will be focus this week on Fed Chair Powell’s semi-annual testimony, US corporate earnings season and Chinese activity data.
The US dollar had a round-trip on Friday before ending weaker against most currencies (the NZD being one of the exceptions). After we went home on Friday evening, the USD strengthened across the board, taking the EUR down from 1.1660 to as low as 1.1613 and the AUD from 0.7410 to 0.7368. Weaker than expected Chinese Aggregate Financing credit numbers (implying a slow-down in the shadow banking sector) and M2 money supply growth saw USD/CNY move above 6.70 and likely contributed to the intraday weakness in the AUD. The GBP also came under pressure as details of President Trump’s interview with the Sun newspaper emerged, where he said the UK government’s recently proposed trade arrangement with the EU “would probably kill” the chances of a UK-US free-trade deal.
The move in the USD reversed around midday London time, with the EUR closing higher on the day at 1.1686 and the AUD around 0.7425 (leaving it the best performing currency in the G10). President Trump gave a joint press conference with Theresa May, where he seemed to backtrack on some of his comments in the Sun, saying a free trade deal was “absolutely possible”, praising Theresa May as a “tough negotiator”, and helping the GBP recover its earlier losses.
The NZD carved out the same intraday pattern but ended the day lower against the USD and the weakest performing G10 currency on the day. The NZD ended the week just below 0.6770, a 0.4% fall on the day while the NZD/AUD fell 0.5% and closed at its lowest level since late January, below 0.9120. The weakness in the NZD may be partly related to some concerns in the market about the risk of a low CPI reading when it is released tomorrow - there is an unusually wide divergence in economists’ forecasts for headline CPI (0.1% to 0.7% q/q). Our forecast is for a 0.6% q/q rise in headline CPI (slightly above the median of 0.5%), but a weaker than expected print would likely see the NZD at least test its year-to-date lows of 0.6688.
Get our daily currency email by signing up here:
BNZ Markets research is available here.