NZD reaction to drop in dairy prices surprisingly muted. Eyes on Fed minutes; investors may use them to take USD profits

By Raiko Shareef

The USD continues to grind higher against most major currencies, though AUD and GBP notably gained ground after good domestic outturns.

NZD largely shrugged off falls in dairy prices at auction.

The slow-motion collapse in EUR remains the primary feature of the broad USD rally, with EUR/USD slipping through support at 1.0660, and now within 2 cents of the 1.0460 low hit in March. That was its lowest level since 2003. Given the speed of the decline, there is an increasing amount of chatter about EUR/USD parity. We are wary that much of the ECB’s expected easing on 4 December is already priced into EUR, and we could see a sharp rally after the event.

AUD and GBP sit as outperformers this morning, after positive readings of the RBA Minutes and UK inflation. On the latter, the upside surprise in core measures will come as some relief to the BoE, but certainly not enough to spark change in the (now) cautious commentary from officials.

NZD’s immediate reaction to the fall in dairy prices at auction, including the 11% drop in wholemilk prices, was very muted. We’re a little surprised not have seen more slippage, but suspect NZD is garnering some support from the NZD/AUD cross, which was already well lower after the RBA Minutes. The cross tried to push through the 100-day moving average at 0.9074 after the auction, but was rebuffed. We still like the idea of NZD underperformance in the medium-term, but with the auction out of the way, NZD may trade more in line with other G10 peers.

The calendar is exceptionally light ahead of tomorrow morning’s FOMC Minutes. The language there would have to be quite hawkish to extend the USD’s recent rally. The Minutes tend provide something for everyone, and we’d be wary that investors may use any cautious headlines as an excuse to take some USD profit off the table.


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Daily exchange rates

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Raiko Shareef is on the BNZ Research team. All its research is available here.