US 10-year Treasury yields nudged up to a fresh high but US equities are unperturbed today, following the nearly 2% loss in the S&P500 seen over the previous couple of sessions. Currencies haven’t changed much since the local close, but for the day as a whole, the NZD has performed well amidst a mildly softer USD backdrop.
President Trump’s State of the Nation speech didn’t contain much relevant for the market. As forewarned, he set aside his more combative tone for one of compromise and bipartisanship. There has been a lot of economic data released over the past 24 hours, with much of it in line with market expectations or not significant enough to rattle the market. US ADP employment was strong, supporting market expectations for solid employment growth in Friday’s payrolls report and there was no smoking gun in the employment cost report, with wage inflation remaining modest. Stronger than expected French CPI data offset yesterday’s soft German result, seeing euro-area core CPI inflation in line, still well-below target at 1.0% y/y.
A more significant market reaction came following Australian CPI data yesterday afternoon. Quarterly measures were slightly lower than expected, and the miss wasn’t particularly significant, but the AUD came under pressure nevertheless, seeing the AUD fall half a cent to 0.8050. This was recouped as a bout of USD weakness returned last evening, but a reversal of that move in the last couple of hours sees AUD back down to 0.8060.
Traders closed long AUD/NZD positions, which saw a boost to the NZD, seeing it move up on all the crosses. NZD/AUD moved on a higher plane to around 0.9140 after the Australian CPI result and has stayed there since. A softer USD track saw the NZD reach as high as 0.7420, and a USD recovery since then has pushed the NZD back down to 0.7370. There was some remarkable price action for NZ equities yesterday, down 0.6% in the morning following the weak guide from offshore markets, before a surge of buying in the afternoon saw a more than 2% turnaround, closing up 1.7% for the day. Some NZD buying might have been related to this move.
Moves in EUR and GBP have largely been driven by the swing in the USD. JPY has been the weakest of the majors, which sees USD/JPY up to 109.30 and NZD/JPY up 1% for the day to 80.6. Governor Kuroda reiterated his pledge to lawmakers to achieve the 2% inflation target as soon as possible by “persistently continuing with monetary easing”. Deputy Governor Iwata reinforced that and attempted to jawbone the Yen lower. The BoJ also offered to buy more bonds at a regular operation for the first time since July, a necessary move for its yield curve control policy to keep the 10-year rate below 0.1% amidst a rising global bond yield environment.
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