NZD and AUD fell late on Thursday and have sustained those losses; main price action to speak of is a strong gain in crude oil prices; higher oil prices have given a little boost to the US 10-year Treasury rate

Volatility remains suppressed, with the Easter break not helping.  The NZD and AUD fell late on Thursday and have sustained those losses.  The main price action to speak of is a strong gain in crude oil prices.

The NZD was trading around 0.6720 before the Easter break and fell away soon after, following another month of weak European PMIs released Thursday night.  Germany’s manufacturing PMI stopped falling in April, but the recovery off such a low base was underwhelming compared to expectations. The services PMI for Germany showed strength, but this wasn’t the case across the euro-area, which was weaker than expected.  Overall, the data pointed to Q2 getting off to a weak start for the euro area, with GDP growth likely remaining subdued.  The bounce-back in US retail sales was much stronger than expected, but this didn’t have a sustained impact on the market.  A trio of soft US housing market indicators have been released, but it’s hard to get too concerned about the US housing market against the backdrop of strong income growth and lower mortgage rates.

The NZD fell to as low as 0.6673 Thursday night and has touched that figure on a number of occasions since – yesterday when only Asia was open and a couple of times overnight.  The low for the year is 0.6652, excluding the 3 January flash-crash, which represents another area of potential support. 

The AUD has more or less followed the same pattern, falling Thursday night and not recovering.  It trades this morning at 0.7135, while NZD/AUD is steady around 0.9360.

The only other news of note is that oil prices are up around 3% to near-6 month highs after the US said that no more waivers will be issued on sanctions against purchasing Iranian oil.  The aim is to drive Iranian oil exports to zero, putting political and economic pressure on that rogue state.  Existing exemptions issued to China, India, and a number of other countries are due to expire on 2 May. Oil market conditions are already tight, given lower output from Venezuela and disruptions in Libya, and the lifting of Iranian sanction waivers will add to the supply pressures on the crude oil market. Saudi Arabia has pledged to work with OPEC to provide an offset.  Brent crude is currently over USD74 per barrel while WTI is over USD65.

TheS&P500 is currently trading sideways, but within the mix, energy stocks are up nearly 2%.  Higher oil prices have given a little boost to the US 10-year Treasury rate, which is up 3bps for the day to 2.59% and up nearly 2bps since Thursday’s NZ close. Higher oil prices have also supported CAD, with USD/CAD down 0.4% to 1.3340.  NZD/CAD is approaching 0.8900, which has been an area of support all year, but unlikely to hold if oil prices keep rising.

Little price action is evident in other major currencies.  In other news, pressure remains on UK PM May, with a “grassroots” challenge emerging to her leadership after more than 70 chairs of local constituency associations handed in a petition to the party to hold an extraordinary general meeting to discuss a no-confidence vote.  A no-confidence vote would be non-binding, but would add to the pressure on her to resign, after her failure three times to get her EU withdrawal agreement through the House of Commons. 

It should be a quiet day ahead. The focus this week turns to Australian CPI data tomorrow. The BoJ and BoC meet this week but no changes to monetary policy are expected, even if the tone tilts more dovish.  US Q1 GDP data are released at the end of the week.

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