NZDUSD opens this morning around 0.7070, while NZDAUD sits close to 0.9110; GBP gained some support; EUR up 0.2% to close at 1.1750

By Doug Steel

It was a very quiet session overnight, compounded by Columbus Day holiday in the US. European bond yields are a touch lower, while equity markets are generally little changed and currencies typically traded in tight ranges. The DXY US dollar index is marginally lower, down less than 0.2% on the day. USD/JPY is unchanged at 112.70.

The only big move of note in the past 24 hours has been in the Turkish lira. Told you it was a quiet day. The lira (TRY) dropped more than 6% against the US dollar at one point yesterday morning as tensions between the US and Turkey continue to rise. Latest developments see the US and Turkey suspending visa services for citizens looking to visit each other’s country. TRY has since stabilised to now be only down around 3%. TRY’s decline comes on top of some general downward pressure on emerging market currencies over recent weeks as prospects of further interest rate hikes from the Fed increase.

NZD was mildly sold on the open yesterday as a reaction to the weekend’s final vote count that saw Labour and the Greens both pick up one more seat at the expense of National, despite this outcome being no surprise. NZD/USD dipped nearly 40pips, in illiquid conditions, to its lowest level since early June at just above 0.7050. Our usual missive for this election to fade any politically-motivated currency reaction proved fruitful again as the NZD quickly recovered and traded a tight circa 20 pip range overnight. We are no closer of knowing which way NZ First will lean. Our view continues to be to fade any knee-jerk currency reaction, whatever the final make-up of government. NZD/USD opens this morning around 0.7070, while NZD/AUD sits close to 0.9110. Today’s electronic card transactions data is unlikely to ruffle markets.

For the major currencies overnight, GBP gained some support as UK politics found a pocket of relative calm with talk of a cabinet reshuffle strengthening Prime Minister May’s position. This has stopped the rot for now in the GBP, as the fifth round of Brexit talks gets underway. Also, an upward revision to unit labour costs for the first half of 2017 supports thinking the BoE will hike rates this year. GBP/USD pushed just above 1.3180 at one point, before easing back. The pair opens this morning around 1.3150, still up 0.7% on the day. GBP strength drove NZD/GBP down 0.9% and back below 0.5400, opening around 0.5370 this morning.

German industrial production posted its strongest rise in six years, rising 2.6% in August much stronger than the 0.9% expected expansion. The lift is another sign of economic strength in core Europe adding some real weight to the positive vibes that has been prevalent across confidence surveys.

Oddly, EUR initially dipped on the news, reaching a low around 1.1720 last evening. Perhaps the perverse move was a nod to the winner of the 2017 Nobel Prize in Economics, Richard Thaler, for shedding light on how human weaknesses such as a lack of rationality and self-control can ultimately affect markets. In any case, the EUR recovered, and opens this morning up 0.2%, at close to 1.1750, with some support from Executive Board member Lautenschlaeger noting that the ECB should ‘begin reducing our bond purchases next year’.

Oil prices have pushed marginally higher as OPEC Secretary-General said the oil market is re-balancing but may need further steps to sustain the recovery into 2018. This supports the growing consensus that production cuts that expire in March next year will be extended. Brent crude is up 0.5%, just shy of US$56/bbl.

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