A risk-on environment overnight sees US equities up 0.4% (paring gains after the FOMC minutes), and a lower the VIX index, but the NZD remains out of favour and is down on most of the crosses, although currency movements overall have been modest.
The USD was on an upward path after ADP private payrolls figures were stronger than expected, adding some upside risk to Friday’s more-important employment report. The non-manufacturing ISM index was softer than expected, falling to a 5-month low, and employment component also looked on the soft side, but this only caused a temporary hiccup in the higher USD trajectory.
After the release of the minutes of the FOMC’s March meeting, the USD slipped after taking some time to digest the report. The key takeout was that most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the committee’s reinvestment policy would likely be appropriate later this year. It was the comment that related to balance sheet adjustment that got the markets attention, with a more definitive sense of timing given. With the Fed looking to reduce the size of its balance sheet later in the year, this would act as a tightening in monetary policy, so the market took the view that this probably reduced the upside pressure to US rates down the track and the USD fell, giving up most of its earlier gains.
The USD major currency index is still up for the day, albeit the gain has been pared back from +0.3% down to +0.1% following those minutes.
After trading in a very tight range yesterday, the NZD trended down towards the 0.6945 mark, following strength in the USD, before recovering 20pips or so after the release of the FOMC minutes. Despite the higher risk appetite environment, the NZD still underperformed on most of the other crosses.
The AUD was supported by higher base metal prices. This followed news that China was looking to develop an economic zone near Beijing. Copper, nickel, zinc and iron ore prices all rose, the latter rising to $81.50 after spending a couple of days with a $79 handle. Crude oil prices made good gains until data showed US stockpiles rising to a record high last week and those gains were pared back significantly. NZD/AUD fell back through the 0.92 handle and trades this morning around 0.9180.
GBP was well supported following a stronger than expected PMI services figure. The services sector is very important to the UK so the market took note. GBP was the best performing major currency, seeing GBP/USD up to 1.2490 and NZD/GBP continuing to trend lower and down to 0.5575.
The yen was under a little pressure in the risk-on environment, but it has since recovered. NZD/JPY is flat at 77.2.
Get our daily currency email by signing up here:
BNZ Markets research is available here.