Modest movements across markets after choppy few days; NZ current account worse than expected but NZD tracks higher; UK labour market holding up post-Brexit world

By Jason Wong

After three choppy trading sessions markets are surprisingly calm, with modest changes in equity prices, as global bond yields retreat from recent highs. 

The USD has lost a little ground against all the major currencies and the NZD has been one of the best performing, although currency movements have been modest overall.

The NZD has generally tracked higher since yesterday’s open and sits up 0.4% at 0.7280. 

Yesterday’s current account figures weren’t quite as good as the market expected, but the annual deficit has retreated over the past year and sits just under the 3% of GDP mark. 

Today’s GDP figures are expected to show strong growth in Q2, and we see the balance of risk towards a positive surprise relative to the market’s 1.1% q/q estimate. This should keep the NZD well bid.

With the AUD barely higher against the USD at 0.7475, NZD/AUD is up to circa 0.9745. If NZ GDP positively surprises then a knee-jerk move to break 0.98 is entirely possible.

Amidst a weaker USD, EUR and GBP are up in the order of 0.3% to 1.1250 and 1.3240 respectively. 

UK labour market data continued the theme of the UK economy holding up in the post Brexit world. The reported 3-month average unemployment rate was steady at 4.9% in July, although the month itself showed a fall to 4.7%. It’s early days yet and we remain convinced that as business investment slumps amidst a prolonged period of uncertainty, it will ultimately lead to a slump in economic activity. 

Tonight the Bank of England is expected to keep policy unchanged, but offer a dovish statement about the outlook.

Speculation continues to mount in Japan about the BoJ’s next move following the “comprehensive” review of monetary policy currently underway. Headlines of rate cuts being the best course of action saw USD/JPY up to as high as 103.36 yesterday, but those gains have been wiped out and it now sits down 0.2% for the day at 102.40.

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Daily exchange rates

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