Since the start of the week, in the backdrop of fairly range-bound trading for most currencies, the NZD and AUD have forged ahead.
It was a relatively quiet start to the week given the celebration of Columbus Day in the US. Exchanges remained opened but the S&P500 has recorded a flat performance. Meanwhile commodities have fallen, led by a 4.5% decline in the WTI price.
Overall the USD was a fraction weaker and the USD/JPY dipped its nose back below the 120.00 level. Given our expectation for a more extended but somewhat slower USD appreciation path, we now see the USD/JPY oscillating around the 120.00 level through to year-end. We maintain our forecast for a 127.00 cycle high for the USD/JPY but have pushed this out to 2017.
The NZD and AUD have been the best performing currencies since the start of the week. As global risk appetite has continued to stabilise, and volatility subside, the NZD/USD has traded to above 0.6730, its highest level since late July.
The AUD/USD has also pushed through its 100-day moving average to trade at 0.7370. The next challenge for the AUD will be today’s NAB business survey and the release of China trade data.
While the market continues to perceive China as the primary source of global growth risk, the AUD (and NZD) will remain particularly sensitive to data releases.
For the NZD/AUD cross, a positive data surprise will tend to lead to weakness and vice versa. This morning the NZD/AUD trades at 0.9130.
On most of the crosses, the NZD has made gains in recent weeks.
Notably, the NZD/GBP has rebounded around 8.0% from its late-Sept lows. Contributing to the move has been the market’s pushing back of expectations for a first rate hike from the Bank of England.
A hike is no longer fully priced within 2016. Tonight’s release of UK CPI may simply confirm to the market that inflation is not a pressing concern, so the BoE can afford to be patient.
Tonight, German CPI will also be released along with the German ZEW survey of the economy.
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Kymberly Martin is on the BNZ Research team. All its research is available here.