The USD ended the week on a soft note helping to propel US equities to another record high, while global bond rates drifted higher.
For the week, the NZD was 1% higher against the USD but down slightly on all the other major crosses.
The bull market in equities continues, with the S&P piling on another 1.2% to a fresh record high, driven by record inflows into equity funds, a positive earnings season and a weak USD. US GDP growth in Q4 came in slightly below expectations, weighed down by softer inventories and a wider trade deficit but components of domestic demand were strong. Core PCE inflation of 1.9% (annualised) and 1.5% y/y matched expectations.
Soon after our daily on Friday was sent out, the USD shot up after President Trump said that he ultimately wants to see a strong USD and that Treasury Secretary Mnuchin’s comments that a weaker dollar is good for trade were taken out of context. That move reflected how short traders of USD had become and the sensitivities around US trade policy at present. However, the move wasn’t sustained and USD weakness set in again. Bloomberg’s dollar index fell for the seventh consecutive week, making the recent trend look fairy ominous with all key technical support levels now clearly breached.
On Friday the focus on the World Economic Forum continued. In his keynote speech, President Trump offered a conciliatory tone, suggesting that his “America First” policy doesn’t mean “America Alone”. He said that the US still supports free trade as long as it is “fair and reciprocal”. His comments had no impact on the dollar.
The BoJ’s Kuroda had an impact, with his comments noting some progress on wages and prices, with Japan “finally close” to its 2% inflation target. This saw a leg down in USD/JPY to a 4-month low of 108.28, before a BoJ spokesman clarified that Kuroda’s comment was not different from the view stated in the last official statement, with 2% not being reached until fiscal 2019, and this saw a modest reversal. NZD/JPY traded just under the 80 mark, back to levels seen earlier this month.
Trump’s “strong USD” comment early Friday saw the NZD step down from 0.7375 to as low as 0.7291 by noon, before staging a recovery, closing the week around 0.7360. For the week, the NZD underperformed against all but the USD, with Thursday’s weak CPI result doing the damage. The market isn’t reading any implications of the weak NZ CPI result for the Australian figure this Wednesday. The AUD was one of the best performing currencies on Friday, rising to a high of 0.8136, a level not seen since mid-2015. AUD strength meant NZD/AUD closed the week down at around 0.9075.
Slightly stronger UK GDP for Q4 only had a short-term impact in GBP and it ending up falling over 100pips to close the week around 1.4160. NZD/GBP got down close to 0.5150 before closing the week nearer 0.52.
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