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NZD started the week on a soft note as hedge funds sold the currency; USD is slightly weaker, with the TWI majors index down 0.2%; GBP is one of the best performers, up 0.6% to 1.3210 USD

Currencies
NZD started the week on a soft note as hedge funds sold the currency; USD is slightly weaker, with the TWI majors index down 0.2%; GBP is one of the best performers, up 0.6% to 1.3210 USD

By Jason Wong

It has been a fairly quiet start to the week ahead of a busy economic calendar.  The USD and rates are down slightly as talk of watered down tax reform emerges.

There have been a few market moving events but price action has been pretty modest overall as currency traders await month-end flows. The USD is slightly weaker, with the TWI majors index down 0.2%, after reports emerged that Trump’s desired corporate tax rate reduction from 35% to 20% might be phased in over 5-years.  This would make tax law easier to get passed, but obviously the economic and market impact would be more limited.  Since that news, US equities have weakened and the S&P 500 index is currently down 0.3%, the US 10-year rate fell 3bps to 2.37%, after spending most of the session hovering around the 2.40% mark, and the USD weakened.  There was no market reaction to the news that three people have been charged, including Trump’s former election campaign manager, on various crimes including money laundering, after investigation into Trump-Russia links.  Income and spending data were in line, as was the (low) PCE deflator, as indicated by previously released CPI data.

The NZD started the week on a soft note as hedge funds sold the currency after headline reports that the new Finance Minister suggested in a weekend TV interview that revising the RBNZ mandate could lead to lower interest rates if an employment target were included. It was a misleading headline and anyone who actually watched the interview would have noted how well the new Finance Minister came across from a markets’ perspective – he talked of being fiscally responsible and that the RBNZ would maintain its focus on price stability. As we suggested yesterday, the market had nothing to fear about the mooted changes to the RBNZ Act.  These changes will be some time away (more than a year?) and in the meantime inflationary pressure looks to be rising, something the RBNZ might well acknowledge at next week’s MPS.  The NZD was lower across the board and fell to as low as 0.6833 before staging a recovery.  It currently sits down slighly from last week’s close at 0.6870. NZD/AUD followed a similar path and currently sits at 0.8950, down ever so slightly from the week-end close.

GBP is one of the best performers, up 0.6% to 1.3210 ahead of the BoE meeting later this week, where the Bank is expected to raise rates for the first time in a decade.  EUR is up 0.2% to 1.1630, supported by reduced political risk in Spain.  The Spanish government took control of the Catalan government with little resistance.  In economic data, euro area economic confidence surged to its highest level in almost 17 years while German CPI data came in 0.2 percentage points below expectations, despite the country’s very strong economic backdrop, highlighting the challenge the ECB faces in getting inflation higher.  These stronger currencies see NZD/GBP down to 0.5200 and 0.5905 respectively.


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