The Opening Bell: Where currencies start on Friday, November 3, 2017

By Dan Bell

The NZDUSD opens at 0.6918 (mid-rate) this morning.

The NZDGBP rate has rallied 2.2% as the Bank of England (BOE) raised interest rates for the first time in more than a decade overnight, a landmark move after borrowing costs had slumped to the lowest level on record. The Monetary Policy Committee (MPC) voted by a majority of 7-2 to increase the Bank Rate by 0.25 percentage points, to 0.5%.

The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion.  The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

CPI inflation rose to 3.0% in September.  The MPC still expects inflation to peak above 3.0% in October, as the past depreciation of sterling and recent increases in energy prices continue to pass through to consumer prices.  The MPC expects the effects of rising import prices on inflation to diminish over the next few years, and domestic inflationary pressures to gradually pick up as spare capacity is absorbed and wage growth recovers.  Inflation is expected to fall back over 2018 and conditioned on the gently rising path of Bank Rate implied by current market yields, to approach the 2% target by the end of the forecast period.

At 50.8 in October, up from 48.1 in September, the seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI) moved back above the 50.0 no-change mark. However, the latest reading was weaker than the post-crisis trend (54.7) and signalled only a marginal rise in overall construction output.

In the week ending October 28, the advance figure for seasonally adjusted initial claims was 229,000, a decrease of 5,000 from the previous week’s revised level. The 4-week moving average was 232,500, a decrease of 7,250 from the previous week’s revised average. This is the lowest level for this average since April 7, 1973 when it was 232,250. Claims taking procedures continue to be severely disrupted in the Virgin Islands. The ability to take claims has improved in Puerto Rico and they are now processing backlogged claims.

Overnight data tonight for the U.S. includes Non-Farm Employment Change, Unemployment rate, Average Hourly Earnings, Trade Balance, Final Services PMI and ISM Non-Manufacturing PMI, Factory Orders and FOMC Member Kashkari speaks.

Japanese bank holiday today, and on Sunday the US and Canada exit daylight savings and their clocks move back by 1 hour.

Global equity markets are mixed- Dow +0.09%, S&P 500 -0.15%, FTSE +0.90%, DAX -0.18%, CAC -0.17%, Nikkei +0.53%, Shanghai -0.37%.

Gold prices are unchanged trading at $1,277 an ounce. WTI Crude Oil prices are modestly higher at 0.1% overnight currently sitting at $54.45 a barrel.

Current indicative rates:

NZDUSD    0.6918      0.4%
NZDEUR    0.5933      0.2%
NZDGBP    0.5295      2.2%
NZDJPY      78.90       1.6%
NZDAUD    0.8962     -0.1%
NZDCAD    0.8864     -0.3%
GBPNZD    1.8871     -2.2%


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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here »

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