In a day of only modest changes in bond and equity prices and currencies, the NZD has significantly underperformed, while the USD has staged a modest recovery.
Oil prices have rebounded by 3% and the WTI measure is back above the USD 40 per barrel mark, helped by a report showing a big drop in gasoline stockpiles.
Yesterday’s LCI and QES labour market data pointed to soft NZ wage inflation and modest growth in activity for the June quarter. This was significant enough to knock down the NZD, after its strong run in previous trading sessions.
The NZD has continued to push lower, helped by a better bid for the USD and currently sits at 0.7145, almost a full cent down from this time yesterday and near the low for the session.
Trading activity should quieten as we head into Friday night’s US non-farm payrolls release. There could be some spillover effect from tomorrow’s RBA’s Statement on Monetary Policy, but apart from that there’s nothing much to drive the NZD as we head towards the end of the week.
USD indices are up about 0.4-0.5%, following the 2+% loss over the past week or so. US data overnight supported the USD, with an encouraging ADP employment report and, while the non-manufacturing ISM headline index was slightly weaker than expected, the slippage was from a robust level in June.
Elsewhere, there’s not much to report. After its strong rally in the hours following the RBA rate cut, the AUD has retraced a bit to trade back below 0.76. The relatively softer NZD means that NZD/AUD is down almost a percent to 0.9430, not far off the mid-point of the 0.93-0.96 range we expect to prevail for much of the rest of the year.
The trading range for JPY has been fairly narrow as the dust settles following underwhelming monetary and fiscal policy announcements over the past week. USD/JPY sits at 101.20. EUR has unwound all of its gains over the previous session and trades at 1.1140.
GBP has been fairly settled ahead of the Bank of England announcement tonight. The BoE is widely expected to cut the bank rate by 25bps to 0.25% and such a move is almost fully priced.
Of more interest is the intent to provide additional stimulus. No change to the asset purchase target is expected, but the BoE could signal further QE in the future, perhaps buying corporate bonds, as the ECB currently does. An extension of the funding-for-lending scheme, which incentivises banks to lend money, could also be in the pipeline.
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