The USD weakened against all of its peers overnight. The NZD and GBP have been the strongest performers.
The USD index was drifting lower for much of the day yesterday, but the move was compounded by the release of disappointing US retail sales data early this morning. In the detail the disappointment appeared genuine, likely emboldening doves within the US Fed. The market has further reduced it expectation of a Fed hike by year-end. The USD index sits about 0.7% lower than this time yesterday morning.
Upward momentum in the GBP picked up overnight after the releases of the UK employment report. The data was not unambiguously positive as average earnings were lower than expected and jobless claims higher. However, after some initial volatility the market appeared to focus on the fact the unemployment rate had fallen from 5.5% to 5.4%. This seemed to offset some of the fears from the previous day’s low-side UK inflation reading. From 1.5270 last evening the GBP/USD now trades at 1.5460.
The AUD/USD has ground its way higher overnight, ahead of the closely watched AU employment report due out today. Our NAB colleagues look for an 11k net increase in employment. This is likely enough to keep the unemployment rate steady at 6.2%. This is not too far from consensus expectations. However, this series is prone to surprises, and sharp market responses. Our bigger picture view for the AUD/USD remains a 0.65-0.75 range throughout the year ahead.
The NZD is back in pole position. It has climbed almost 1.9% against the USD over the past 24-hours. Interestingly, the market’s initial response to the release to the RBNZ’s speech yesterday morning (see Interest Rates), was to drop. This was probably not helped by initial news headlines that described the speech as ‘dovish’. Yes, the speech reiterated the RBNZ is likely to cut again, but that should not have been news to the market. Rather the speech’s emphasis was on reasons not to expect aggressive cutting.
The NZD appeared to subsequently take the latter message on board. It also gained vigour from the broadly weaker tone in the USD overnight. The NZD/USD trades at 0.6770 this morning, slightly off its intra-night highs. Still, its level looks dangerously like an attempt to break through range-highs since the start of July.
The NZD has also been stronger on the crosses, most notably against the AUD. The NZD/AUD has broken through its 200-day moving average to trade at 0.9310 currently. This is its highest level since early-June. The dominant driver of the cross today will likely be the release of the AU employment report. There is also the BNZ PMI to look out for.
Tonight, there are a handful of potentially market moving US data releases, including the Philadelphia Fed survey and Sep CPI. There are also a rash of Fed and ECB speakers scheduled for appearance.
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Kymberly Martin is on the BNZ Research team. All its research is available here.