Volatile week ahead likely as RBA decides, NZ jobless data due, China factory confidence eyed. CRB commodity index rises

By Kymberly Martin

On Friday, most currencies rose against the USD. The NZD was the strongest performer.

In relatively orderly markets on Friday night, equities provided modest returns either side of flat.

The CRB broad global commodity index rebounded 0.75%, assisted by a 1.1% rise in the WTI oil price.

The USD drifted lower for most of the evening, despite US data mostly aligning with expectations and the Chicago PMI providing a strong positive surprise. It was not until the early hours of Sat morning that the USD finally found some composure. It rebounded from intra-night lows to end the week at 96.90.

The GBP was the best performing European currency, rising from 1.5320 to 1.5420 against the USD. This is approaching the top of its range of the past six weeks. This week there is UK PMI data due that may help inform direction in the GBP. However, Thursday’s Bank of England meeting may seal the currency’s fate. No change of policy is expected, but the Bank’s tone will influence the market’s thinking on future BoE action. Currently the market is not looking for a first hike until early 2017.

Meanwhile, the Bank of Japan announced no changes to its asset purchase policy on Friday. This caused a brief spike in the JPY. However this proved short-lived. The JPY later sold off, before the USD/JPY closed for the week at 120.60. We still see potential for further easing to be announced in the months ahead as the BoJ struggles to achieve its elusive 2% inflation target.

The NZD/USD gained a boost from the release of the ANZ business survey early Friday afternoon. This showed a clear bounce in optimism across the board. Seasonally adjusted, the bounce in business confidence was the biggest one month lift in more than 20 years. The dramatic improvement in GDT dairy auction prices from their early-August lows is surely part of the return of confidence. A general calming in the fear factor globally is also likely to have helped.  Composure has returned.

However, this survey principally reduces some of the downside risks to growth forecasts that were appearing, rather than being reason to push the growth outlook higher. But the NZD liked what it saw. It gapped higher and maintained upward momentum overnight against a weaker USD. The NZD/USD ended the week at 0.6780.

The kiwi also managed to push its nose a little higher against the AUD, to end the week above 0.9490, its highest close since early-May. It is likely to be a volatile week for the cross with tomorrow’s RBA meeting and Wednesday’s NZ employment report. The AUD is unlikely to show too much reaction to the weekend’s release of the official China PMI. This remained unchanged, against expectation for a small rise. However, also keep an eye out for today’s Caixin China PMI release.


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Daily exchange rates

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Kymberly Martin is on the BNZ Research team. All its research is available here.