Speculation Greek bank collateral almost exhausted; USD rises on hopes of stronger US data; US Fed member Evans reiterates view on rate hikes in 2016

By Kymberly Martin

The USD rebounded overnight, outperforming all its peers. The NZD was amongst the weakest performers over the past 24-hours.

As if to indicate the strong USD theme is not yet over, the USD index put in a solid rebound overnight, in the backdrop of minimal data releases. The move was assisted by a weak EUR. It was weighed on by speculation that time for Greek banks is running out, as their collateral is almost exhausted.

Meanwhile no breakthrough in negotiations between Greece and its official creditors has been forthcoming. From 1.1140 last evening the EUR/USD now trades at 1.1300.

The USD index has risen around 0.90% to 94.20. The market may be hopeful of some firmer May data prints later in the week. It will also have its eye on tomorrow night’s US FOMC Minutes.

Last night, Fed member Evans was the latest to offer his views on the timing and pace of Fed hikes. He repeated his view that hikes should not begin before early 2016 and progress very gradually thereafter. He referenced his inflation forecasts that do not see the 2% target being achieved until 2018.

Meanwhile, overnight, the S&P500 rose to a new all-time high, assisted by ongoing supportive monetary policy.

The AUD/USD briefly pushed higher yesterday morning. However, this was curtailed by comments from RBA’s Lowe that caught headlines, saying the Bank “still have scope to lower rates if needed”.

Overnight, the AUD/USD then fell victim to the broader strength of the USD. It trades at 0.7980 this morning. Today it will be all eyes on the RBA’s May Minutes for hints as to whether further cuts are in the offing after its 25bps cut at last meeting.

The NZD/USD has declined around 1.2% from where it closed last week.  It traded in a range for much of yesterday but succumbed to a stronger USD overnight, along with most of its peers. Sitting at 0.7380 this morning, support is now eyed at 0.7320, while near-term resistance is seen at 0.7450.

The NZD is also a bit weaker on a number of crosses. Notably the NZD/GBP has drifted down to 0.4710. Whether it revisits last week’s lows of 0.4670 may be influenced by the GBP’s response to the release of tomorrow night’s Bank of England Minutes.

Ahead of that there are also a couple of hurdles for the NZD. First will be this morning’s release of the RBNZ’s inflation expectations survey (see Interest Rates). Next will be the latest GDT diary auction, scheduled for early tomorrow morning. We are agnostic on the results for this particular event but still look for a rebound in prices for the second half of the calendar year.


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Daily exchange rates

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Kymberly Martin is on the BNZ Research team. All its research is available here.