BoE Governor lights fire under UK assets with rate hike comments; Aussie business confidence improves

By Raiko Shareef

The USD is modestly weaker overnight, thanks to a pair of soft US data reports.

The GBP was a clear outperformer, as BoE officials tout the prospect of rate hikes. The AUD benefitted from an encouraging NAB survey, seeing NZD/AUD dip back below 0.90.

US retail sales and the NFIB small business survey both disappointed expectations, but a sharp USD sell-off was pared ahead of Fed Chair Yellen’s testimony to the House this evening (part of a double-header appearance in front of Congress).

We anticipate that she will reiterate her view that a 2015 rate hike looks likely, and give away not much else.

Ms Yellen’s poker face has come a long way since the infamous “around six months” comment made at the start of her stint as Fed Chair. 

On the theme of central bankers standing (or sitting) to attention in front of lawmakers, BoE Governor Carney lit a fire under UK assets overnight after his appearance at a parliamentary hearing.

In his first comment on monetary policy in weeks, the Governor noted that “the point at which interest rates may being to rise is moving closer, given the performance of the economy.”

This comment helped GBP gain 0.9% on the day, despite a downside miss in UK core inflation.

NAB’s business survey yesterday showed a considerable improvement in both the confidence and conditions indices, suggesting a more convincing turnaround in the non-resource sectors and regions of the Australian economy.

Our NAB colleagues see no more cuts from the RBA, in the face of an improving economy and a continued downward adjustment in AUD. The AUD gained 0.6% to the familiar 0.7550 level.

NZD/USD was pushed back toward 0.6750 in the wake of the weak US data, but has since settled back just above 0.67.

NZD/AUD was pushed below 0.90 overnight, but is clinging onto that handle as this note goes to print. Upward momentum in the cross has waned.

Any surprises in China’s data dump will help provide some direction. Those data are generally expected to soften modestly from last month. China’s GDP growth is expected to slow to 6.8% y/y in Q2 from 7.0% in Q1.

A quick note on the news dominating media headlines today: the nuclear accord struck between Iran and the major powers has had little effect on major currencies.

The obvious channel and beneficiaries (oil prices, and commodity currencies) have for some time now priced in the prospect of a deal.

Aside from Fed Chair Yellen’s testimony and the Chinese data flurry mentioned earlier, there is plenty on the calendar today to keep investors busy.

The Bank of Japan and the Bank of Canada both have policy meetings; the latter is expected to cut interest rates.

For NZD, we’ll be keeping a keen eye out for the GlobalDairyTrade auction results. We anticipate a soft reading, with rather depressing conditions prevailing for the dairy market at present.


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Daily exchange rates

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Raiko Shareef is on the BNZ Research team. All its research is available here.