Shortage of data leaves NZD vulnerable to overseas currency movements; speculative net short GBP positions hit another record

By Kymberly Martin

An uptrend in the USD continued from Friday afternoon into the early hours of Saturday morning. All majors declined on the day, though from early evening many, including the NZD/USD, managed to consolidate.

In a day that lacked data releases or major events, comments by San Francisco Fed President Williams (non-voter) gained disproportionate attention. He called for a Fed rate hike sooner “rather than later”. He also said the view the Fed is on hold for the next year is not consistent with the economic outlook.

However, that has been the case for some time. But the market seems inclined to consider not only the US economic outlook but offshore economic and market volatility risks when pricing the Fed funds rate path. The market now prices circa 15bps of Fed hikes by year-end.

The GBP/USD was one currency unable to find its feet until the early hours of Saturday morning. It touched lows around 1.3030 before crawling up to end the week at 1.3080. The release of CFTC data for the week ending 16 August showed speculative net short GBP positions had extended to yet another new record, of -94.2k from -90.1k. As we head into next year we expect the GBP/USD will mainly trading with a 1.2 handle.

The NZD/USD succumbed to USD strength on Friday but found its feet by mid-afternoon. It then consolidated within a 0.7250 to 0.7280 band into weekend. Our recently revised forecasts look for 0.70 at year-end. However, this is contingent on the assumption the US Fed delivers a December rate hike.

The NZD strengthened against the AUD on Friday, before consolidating into the weekend. It ended the week above 0.9540. Resistance will likely be encountered at the early-August highs of 0.9570, ahead of 0.9600.

Today there is a strikingly empty economic agenda on either side of the Tasman and globally. The local calendar remains sparsely populated all week.

Local currencies may therefore be at the whim of the USD. This may be influenced by developing views on the Fed, culminating in the scheduled speech by Fed Chair Yellen at the Jackson Hole symposium at weekend.

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Daily exchange rates

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