Major currencies were, again, relatively contained, with the exception the GBP in the wake of the BoE’s release trifecta. It stands 0.6% weaker for the day, on pared hawkishness.
NZD outperformed, with the path of least resistance from 0.65 clearly higher.
The BoE last night simultaneously released its monetary policy decision, the Minutes of that decision, and the Quarterly Inflation report.
The British press dubbed the event ‘Super Thursday’, an admirably enthusiastic label for an event centring upon a central bank.
The upshot of this information onslaught was that the BoE is not leaning towards rates hikes as aggressively as the market expected.
Only one of the 9-member MPC voted for a rate hike, undershooting the market’s expectation for a 7-2 split. Moreover, the BoE sharply lowered its inflation forecasts, largely in light of GBP’s strong appreciation in recent months.
Ironically, that appreciation had largely been brought about by BoE Governor Carney and others’ warnings that the market was underestimating the possibility of 2015 rate hikes.
NZD/USD sits 0.7% stronger this morning at 0.6550, having decided that a sustainable move below 0.65 was too hard, absent fresh information. Fonterra’s payout announcement this morning will provide that fresh information.
We imagine that the market is braced for a figure close to $4.00. A print at $4.25 or above will likely see further gains for NZD, and perhaps a sustained break of important resistance at 0.6580. Anything below $4.00, and we will likely see another test of 0.65.
A mixed-bag unemployment report from Australia reinforced a NZD/AUD swing higher. While the unemployment rate did rise much faster than expected, the ‘bad news’ signal from that was mitigated by strong employment growth and news that more people are entering the labour force. AUD still succumbed to the miss in the headline unemployment series.
Following the Fonterra announcement, local investors will hunker down along with their global peers ahead of tonight’s US employment reports. With payrolls expected to print at 225k, and the USD trading higher over the past week, we think that any undershoot will see sharper reactions across currency markets.
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Raiko Shareef is on the BNZ Research team. All its research is available here.