By Kymberly Martin
Overall, currencies have been relatively range-bound since the start of the week. However, the JPY has declined, while the GBP has enjoyed a rare moment in the yellow jersey. The NZD/USD fell sharply after the release of NZ Q2 CPI but has subsequently crawled higher.
In a quiet start to the week, with limited dataflow and a welcome lack of dramatic headlines, most currencies have traded within contained ranges.
However, the NZD/USD experienced a fairly marked gap lower on the lower-than-expected NZ Q2 CPI print yesterday morning. The market has increased pricing for an August OCR cut.
However, after touching lows below 0.7080 the NZD/USD fought its way back up to 0.7120 last evening and has consolidated below this level overnight.
The RBNZ’s economic update on Thursday has potential to push the market toward fully pricing a cut and see the NZD lower by weekend.
Also look out for the latest GDT dairy auction in the early hours of tomorrow morning. We do not have a strong view on the outcome and therefore do not anticipate it being a big market mover, but we have been surprised before.
The GBP has managed to gain on the USD since the start of the week. Bank of England’s Weale (hawk), speaking in the wake of the ‘Brexit’ vote, believes the BoE should wait for firmer evidence before attempting policy change. He said in contrast to the experience of 2008, “I do not have any sense that either consumers of businesses are panic-struck”. There was some volatility in the GBP/USD around these comments. In the early hours of this morning the GBP/USD briefly traded above 1.3300, but now trades at 1.3270.
The JPY has weakened since the start of the week. From 105.40 the USD/JPY has risen to 106.00. This is around the levels it traded prior to its dramatic post-‘Brexit’ vote plunge.
Ahead of the release of RBA Minutes today the AUD/USD trades just below 0.7600. However, next Wednesday’s AU Q2 CPI release may have greater potential to impact the currency. Our NAB colleagues see less downside for the AUD on a Q3 CPI print that bolsters expectations for an August cut (already 60% priced), than upside if the data in fact sees the market moving to price out a rate cut.
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