A USD downtrend remained intact last week with US data and politics on Friday doing little to arrest the bias for a softer USD near term. On Friday, US equities were mixed, while yields declined despite another rise in oil prices.
In Friday night’s session, GDP outturns made their mark on currency performance. US data was solid but generally underwhelmed expectations. Q2 GDP rose 2.6% at an annualised pace, just under the official market estimate of 2.7% on the day, but after last week’s trade and inventory data, some were probably looking for even more. Q1 was revised down to 1.2% from 1.4%. Overall, the pace of growth should keep downward pressure on the unemployment rate (watch this Friday’s data), but inflation remains benign. The Q2 employment cost index came in a tick under expectations.
The failure to pass ‘skinny’ Obamacare repeal last week further highlights the challenges to the Trump administration’s growth agenda and the firing of Trump’s chief of staff, Priebus, is yet another sign of turmoil. Meanwhile, the US President has agreed to sign legislation to impose new sanctions on Russia.
It was all an excuse to keep selling the USD on Friday. Amid broad USD weakness, the DXY fell 0.6%. USD/JPY fell 0.5%, the pair opens this morning around 110.60.
France saw GDP above expectations while German inflation came in a tick over estimates supporting the notion that an ECB discussion of tapering is not far off. EUR/USD hit a fresh high since early 2015 and closed near its highs and just over 1.1750.
Sitting at the top off the major currency leaderboard on Friday was SEK and CAD, up 1.2% and 1.0% respectively, with both boosted by better than expected Q2 GDP prints (Sweden up 1.7% vs 0.9% expected and Canada up 0.6% vs 0.2% expected).
CHF extended its decline, the only major currency to fall against a weakening USD. We suspect the outlook for ECB policy relative to SNB is main underlying influence (the SNB reiterated the CHF is ‘significantly overvalued’ during the week). USD/CHF rose another 0.4% on Friday, taking gains to 2.4% for the week.
AUD and NZD both benefited from a weakening USD, rising 0.3% and 0.4% respectively in Friday’s session and both up about 0.8% for the week. Commodity prices were mixed on Friday, with oil up but some others down. NZD opens this morning around 0.7500 and NZD/AUD around 0.9400.
Oil prices rose again on Friday night. Brent crude lifted above $US52/bbl, punching through its 200dma and is now almost 10% up for the month.
Momentum in AUD and NZD has been strong, buoyed by commodity prices and benign risk environment. We are watching for any signs of fatigue. Regards data this week, in NZ eyes will be on this afternoon’s ANZ business survey and more so Wednesday’s Q2 labour market data while tomorrow’s RBA decision and Friday’s RBA Statement on Monetary Policy will garner attention in Australia. But with the USD in the currency driving seat at present, US data (PCE deflator, ISM and payrolls due this week) and politics will remain highly important.
US 10-year Treasury yields sank following the disappointing US GDP data on Friday, more than offsetting some upward influence of higher oil prices. After poking up above 2.33% ahead of the data, 10-year yields reversed course closing near session lows at around 2.29%; down about 2bps on the day. Overall there was a flattening bias as 2-year yields fell less than 1bp.
Locally, NZGB yields rose on Friday with a steepening bias as longer end yields rose around 3bps while shorter end yields rose around 1bp. Short end yields remain anchored by expectations of an on hold RBNZ. NZ swap rates were little changed. NZ 2-year swap closed just under 2.22%, up 1bp, and 5-year swap closed up nearly 1bp at 2.76%.
Get our daily currency email by signing up here:
BNZ Markets research is available here.