Positive economic news overnight saw equity markets rise, yields edge up and the USD dollar lurch higher.
Making a change from recent sessions, economic news had some influence on markets overnight. ADP employment showed the US added 237k jobs in August, beating expectations of 185k. It offers encouragement for official payrolls data on Friday and is likely to keep the USD on the front foot for now. The positive vibe was enhanced shortly after when upward revisions to US Q2 GDP growth were bigger than anticipated. Growth was revised to an annualised pace of 3.0%, its fastest pace in two years.
This put the USD in the ascendancy with broad-based gains with perhaps some extra support from month end buying. The DXY US Dollar Index currently sits up 0.7%.
USD gains were checked at one point when President Trump tweeted that ‘talking is not the answer’ to North Korea’s nuclear threats. The tweet saw USD/JPY pullback from its initial push above 110.40. The pair currently sits just under 110.30, up 0.5% on the day.
EUR dipped back below 1.19, down around 0.7% to its lowest level this week. This was despite Eurozone economic confidence rising to its highest level in a decade to 111.9 in August. Business, industry and services confidence all rose again. But strong economic news from Europe is less of a surprise now and there may be some concern that ECB President Draghi will talk down the single currency at next week’s meeting, even as we get closer to discussion about slowing down the ECB’s asset purchase programme. Slightly higher than expected German inflation overnight had little influence.
The NZD swooned yesterday as RBNZ Governor Wheeler said ‘a lower NZD was needed’ in a speech, despite such language being nothing new from the central bank. Not surprisingly, the dip didn’t last long. But USD strength took over through the night seeing NZD/USD testing the bottom of its recent 0.7190 to 0.7300 range this morning. We see 0.7190 as a key area of resistance that will likely be further tested should today’s NZ business confidence data wobbly down, perhaps on election jitters.
NZD/AUD also dipped yesterday post the RBNZ speech and stronger than expected Australian data for Q2 construction work done data and July building approvals. NZD/AUD tested support just above 0.9070, but has since recovered, and traded a tight range overnight. The pair currently sits around 0.9110, with eyes on today’s NZ business confidence, AU capital expenditure and Chinese PMI data.
GBP managed to hold its own against the stronger greenback, currently sitting flat at about 1.2920. This sees NZD/GBP down 0.8%, at around 0.5570, eyeing range lows just above 0.5560.
Get our daily currency email by signing up here:
BNZ Markets research is available here.