It has been a relatively quiet night in markets, despite a lot of talk around Brexit but reasonably limited market moves. US equities are little changed while US yields are lower despite a push higher in oil prices.
Brexit is now, formally, underway. As expected, overnight the UK government has given formal notice via letter of its intention to leave the EU. In its first response, the European Council (EC) issued a statement noting ‘we regret that the UK will leave the EU, but we are ready for the process that we now will have to follow.’ This process will take quite some time, with a two year period before the UK actually departs. For the EU, the first step will be the adoption of guidelines for the negotiations by the EC. These guidelines will set out the overall positions and principles by which the EU will negotiate with the UK.
There is an awful lot of hard bargaining and delicate negotiating ahead, but for the meantime, none of this is news with the GBP unsurprisingly taking it all in its stride. Sure, some nerves seemed to appear in yesterday’s local session with GBP/USD dropping just over three quarters of a cent in short order around mid-day from around 1.2460 to around 1.2380 on no particular news. There was some volatility overnight, but GBP seemed to derive some benefit from the tone of EU leaders such as EC President Donald Tusk who made calls for an ‘orderly Brexit’. GBP/USD currently sits around 1.2440, no far from where we left it late yesterday afternoon. NZD/GBP opens this morning up 0.3%, but still within last week’s range, at around 0.5650.
EUR/USD is down 0.5%, seemingly more on reports that the ECB will be wary of making any fresh policy shifts in April than on any drag from the start of the Brexit process. EUR/USD currently sits at 1.0760.
The DXY US dollar index sits 0.3% higher, on European currency weakness rather than US dollar strength (the higher than expected US pending home sales is as much noise as it is signal). USD/JPY is little changed currently sitting around 111.00 (JPY not troubled by Japanese retail sales annual growth coming in well under expectations).
AUD/USD has wriggled higher overnight, currently sitting near session highs, up 0.5% at around 0.7670. This puts the AUD at the top of the major currency leader board against the USD, supported by improving risk appetite and higher commodity prices including oil. AUD/USD remains comfortably within a 0.7490 to 0.7750 range that has contained it over the past two months.
Higher commodity prices, including a circa 1% lift in wholemilk powder futures, supported the NZD overnight. This was after NZD/USD tested last week’s lows just below 0.7000 early yesterday evening. NZD/USD opens this morning at familiar levels over the past week and a half at around 0.7030.
The VIX fear index continues to edge down, currently sitting at a risk-loving 11.1.
NZD/AUD continued its trek south yesterday, on little news, but steadied overnight to currently sit around 0.9170. The pair has unwound about half of last week’s gains. Technically, initial support sits around 0.9080 ahead of 0.9030. Resistance levels are well north of current spot.
Get our daily currency email by signing up here:
BNZ Markets research is available here.