Commodity currencies take out the top four places in the daily leaderboard following a strong bounce in oil prices. Other currencies show little change and bond and equity markets are quiet.
The media is full of Trump’s surprise sacking of FBI director Comey, but there is little impact on the market. However, distractions like this only serve to slow down any potential policy changes out of Washington.
Over a day with little on the economic calendar, US equities remain flat around historical highs and the VIX is hovering around historical lows, as a solid US earnings season draws to a close. In terms of Fedspeak, the hawkish and non-voting Rosengren said that along with a gradual reduction in the level of the balance sheet, it would still be reasonable to have three rate increases over the remainder of this year. Voter Kaplan offered a more cautious tone and said that his base-case for rate hikes this year is still three, including the move in March, but he’s “very cognisant” of the fact inflation pressures have been more muted. These Fed speakers had little impact on the market.
The key news overnight has been a 3½% rebound in oil prices, supported by an EIA report that showed a much larger drop in US crude inventories than expected. WTI crude trades this morning at $47.50, still down compared to a week ago, but well up from a low of $44 three days ago.
NOK, NZD, CAD and AUD are all up between 0.3-0.7% versus the USD. The NZD is up 0.6% to 0.6940, with an added boost as some short positions are closed ahead of the RBNZ’s Statement this morning. While we expect the RBNZ to lift its projected inflation and OCR tracks, previous guidance that “monetary policy will remain accommodative for a considerable period” is likely to remain. On a wet day in Wellington, the Bank will be trying to hose down market expectations of an early-2018 rate hike, even as the Bank cautiously shifts away from its neutral bias. On the projections, a big gulf is likely to remain between current market pricing for rate hikes from early next year and the Bank’s projected OCR track (a possible gentle hiking path from late-2018). With the release over a period of thin liquidity as NY closes, some spikey NZD movements are possible.
The NZD is higher on all the key crosses. NZD/AUD is up through 0.94, reaching its highest level in three months. There has still been no word from S&P on its ratings assessment for Australia, following the budget, after Moody’s and Fitch maintained their AAA rating on the sovereign.
EUR continues to lose its afterglow following the French Presidential election. It is probing a fresh two-week low and is closing in on 1.0850. This sees NZD/EUR approaching 0.64. ECB President Draghi presented to Dutch Parliament and he gave a cautious tone regarding the inflation and policy outlook. While he recognised the uplift in growth he noted that “underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend.” Draghi said that changes to the ECB’s policy guidance and rates will only come when inflation is solid enough to continue without the support of monetary stimulus. “Is it time to exit or time to think about exit or not?’ This time hasn’t come yet”.
GBP made a run towards 1.30, but didn’t quite make it and ran into some selling pressure. It is back to flat at 1.2930, allowing NZD/GBP to reach 0.5360. USD/JPY has sustained its move up through 114 yesterday. NZD/JPY continues to show signs of a decent recovery and sits this morning at 79.3, a three-week high.
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