RBNZ removes terms "unjustified" and "unsustainable" from rhetoric; NZD liquidity weaker and susceptible to being spooked; GBP gets wooden spoon as data underwhelms

By Raiko Shareef

NZD is the strongest performing currency against the USD overnight, despite having given back much of its post-RBNZ gains.

The USD is softer, on balance, despite a strong weekly jobless claims report. GBP sits lower, after a poor retail sales number.

NZD/USD sits 0.8% stronger for the day at 0.6620, having flirted with breaking 0.67 overnight.

The NZD benefitted from a less dovish tone from the RBNZ than expected, and also the removal of the watchwords “unjustified” and “unsustainable”.

The Bank still believes that “further depreciation is necessary”, but that is a material downgrade in angst.

We remain short NZD/USD from 0.6605, and happy to let the trade run. NZD ran into resistance at the top-end of the trend channel, currently at 0.6780.

We remain of the view that any rallies will be sold into. The speed at which NZD was rebuffed at that resistance gives us some comfort.

Our trade should find some succour early next week, ahead of the Fed’s policy decision on Thursday, as investors re-enter long USD positions.

Second-tier US economic data was largely ignored last night, but are worth noting. Weekly initial jobless claims fell to 255k, the lowest level since 1973, well below expectations.

This series is quite noisy, but the trend level remains very strong, and should assure policymakers that the unemployment rate will continue to fall.

Elsewhere, the GBP held the wooden spoon overnight, a position is unaccustomed to, of late.

Core retail sales shot well underneath expectations, which caused investors to pare back some rather aggressive gains over the past two weeks.

However, this was simply a blip in an otherwise strong economic picture in the UK.

Today’s local trade balance report should not trouble NZD materially. That said, liquidity has been rather poor and the currency a little flightier than usual.

Offshore, the set of preliminary Markit PMIs are due globally (but sponsor-branded in Japan and China). Note the Caixin PMI was formerly known as the HSBC PMI.

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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.