The low volatility environment continues, with modest currency movements, a slightly positive bias to equity markets and a modest increase in global bond rates. There are really only two things to note, the ECB policy announcement and the plunge in oil prices.
There was no real surprise out of the ECB announcement and Draghi’s press conference. Inflation forecasts were raised +0.4% to 1.7% for 2017, driven by higher commodity prices, but there was little movement beyond that, with only a small tweak to 2018. ECB President Draghi maintained forward guidance of “interest rates will stay low, or lower for an extended period of time”, but he did acknowledge the better economic outlook and said that it’s less likely that rates will have to be cut and that there is no longer a sense of urgency in monetary policy.
EUR jumped about 60pips as Draghi spoke but some of that movement has since faded and EUR/USD is currently up 0.4% for the session at 1.0585.
Since the local close yesterday, the NZD has been trading in a tight range around the 0.69 mark, finding some support at 0.6890 which it has bounced off a few times. If the currency closes the New York session (11am) below 0.6915, then that would mark the 10th lower daily close in succession. That said, the fact that the currency has spent the last 12 hours without falling feels like a “win”. Selling pressure might well have evaporated. We’ll see. The stronger EUR sees NZD/EUR down to 0.6515, a level it hasn’t closed below since early November.
Something we haven’t mentioned much this year is oil prices, given the very tight range it has traded in since the beginning of the year. That all changed yesterday, with oil prices in freefall after US crude inventories were reported to be much higher than expected, raising doubts that OPEC’s production cuts would be enough to drive the market towards balance. From a level of around $53 per barrel for the WTI benchmark a couple of days ago, prices fell through $49 last night for cumulative fall of about 7%.
This has done no favours to the AUD (and CAD of course), which broke down through 0.75 last night before finding some support. With the focus away from plunging dairy prices for a day, NZD/AUD has found some support at last and trades this morning at 0.9185.
Elsewhere there is little to report on currencies. A mild upside bias to US treasury yields sees USD/JPY drift up to 114.75, while GBP is flat at 1.2165.
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