Two of the three major risk events for this week have now passed with no adverse market reaction so focus now turns to the UK election, where the first exit polls will be released from about 9am. The NZD continues to outperform, while the USD has also been well bid, although currency movements have been modest. US equities are flat, while global bond yield movements have been divergent.
There was no fresh smoking gun in former FBI Director Comey’s testimony to a Senate committee. It’s now over to the lawyers to decide whether the President attempted to “obstruct” the course of justice, which would make his actions illegal, but the market reaction of a slightly stronger USD and slightly higher UST yields suggests no real concern that’s the case.
In the much-anticipated ECB policy assessment, the central bank removed its easing bias and upgraded the risks on economic growth to ‘broadly balanced’ from” negative”. This was the first baby step toward normalising policy, but it is likely to be a long, drawn out process. In a market where traders have been generally adding to EUR positions, the common currency fell after the news, but the movement has been modest, falling 0.3% to 1.1215, against a backdrop of a slightly stronger USD. Our London-based NAB colleagues see further incremental changes to policy guidance, including a move in September to announce a tapering of asset purchases beginning next year and some direction on the negative deposit rate by December. While normalising policy will be a pedestrian affair, these sorts of moves underpin our view of the stronger EUR on a 12-18 month view.
Earlier in the session, euro area data remained robust, with German industrial production beating expectations, showing signs of underlying strength in Europe’s largest economy, while GDP in the euro area was revised up in Q1 to 0.6% q/q.
The NZD has made further gains, reaching as high as 0.7223 despite the positive USD backdrop and it currently sits just above the 0.72 mark. The NZD is up on all the crosses, with gains of between 0.2-0.6%. NZD/EUR is up to 0.6430, reaching its highest level in six weeks. The AUD has held its ground around the 0.7550 mark, seeing NZD/AUD nudge up to 0.9560.
GBP softened a little as the UK general election got underway and sits this morning at 1.2930, taking NZD/GBP to up 0.5575.
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