Over the past 24-hours there has been notable trans-Tasman divergence in currency performance.
The AUD has been the strongest major currency while the NZD has been the weakest.
Overnight, in the backdrop of modestly firmer equity markets, a rebound in commodity prices, a rise in bond yields (see Interest Rates), but limited data releases, the USD strengthened. The USD index has risen from 96.80 to 97.40, while the EUR and JPY have drifted lower.
The AUD has been the star performer over the past 24-hours, although suffering a fair amount of volatility. After the RBA left its cash rate unchanged yesterday, whilst leaving the door open to further easing if necessary, the AUD/USD headed higher. This extended pre-meeting gains. It made a bid for the 0.7220 late last evening, but has subsequently dropped back to 0.7180. In the RBA’s statement there was only a small (unchanged) reference to the AUD. “the Australian dollar is adjusting to the significant decline in key commodity prices”.
The upward move in the AUD resulted in an immediate hit to the NZD/AUD cross. The NZD/USD was also on the back-foot heading into the GDT dairy auction in the early hours of this morning, in the backdrop of a broadly stronger USD. The NZD/USD then took another step down after the auction, which showed a further 7.4% decline in average dairy prices since the previous event. The NZD/USD now trades at 0.6680 from early-afternoon highs close to 0.6780. Near-term support remains at 0.6620.
The NZD is also weaker on the crosses, most notably against the AUD. From 0.9450 yesterday afternoon, the cross now trades just above 0.9300, just above the 200-day moving average, at 0.9295.
Now it is all eyes on the NZ employment report. We are aligned with consensus in expecting a tick up in the unemployment rate. However, we see this as largely reflecting still strong net migration flows as opposed to genuine underlying weakness in the labour market. Across the Tasman, retail sales data may be the focus.
Tonight there is a rash of Service PMI data to be released. But the market may focus on the release of the US ADP employment report, as a precursor to Friday’s all-important US payrolls report. Fed Chairperson, Yellen, will also testify on Bank Regulation tonight.
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Kymberly Martin is on the BNZ Research team. All its research is available here.