Wheelers speech gives NZD boost higher; USD in consolidation mode ahead of Jackson Hole gathering

By Kymberly Martin

The NZD/USD has been the strongest performer over the past 24-hours, closely followed by the GBP. The USD index has traded a tight sideways range.

The relative calm in markets sustained overnight. The Euro Stoxx 50 pushed up 1.1%, led by financial sector companies. The S&P500 has given up some of its early gains but remains up 0.3%. Our global risk appetite index remains at a fairly hearty 64%.

The USD appears to be in consolidation mode ahead of the key risk event for the week, Fed Chair Yellen’s scheduled speech at Jackson Hole. The market has recently nudged up expectations for near-term Fed activity but still remains fairly reticent to fully price a rate hike. It prices only 15bps of hikes by year-end. A full 25bps hike is not priced until mid-next year.

Both the USD index and the EUR/USD traded a bit of a range overnight. However, the GBP/USD extended its gain for the week. It pushed higher in the afternoon and evening before consolidating overnight. It now trades around 1.3200. We continue to see the GBP/USD trading lower over the medium-term. However, positioning is the key near-term risk. Given speculative short positions in the GBP are at record highs, it remains susceptible to short-term bounces on new information that does not support an entrenched negative view.

The NZD/USD was spurred higher yesterday morning on the release of a pre-scheduled speech from RBNZ Governor Wheeler. However, this looked to be an over-reaction given the speech specifically stated it was a reiteration of themes from the recent MPS. The NZD/USD soon gave up the gain but enjoyed a more sustained rise from early-afternoon.

However, it found resistance early this morning at range highs near 0.7340. It now trades near 0.7300. If the NZD/USD was to successfully break through last night’s resistance it would take the currency to its highest level since May 2015. Meanwhile near-term support is eyed approaching 0.7200.

Today, NZ trade data and new residential lending data will be released for July. Neither normally has a major influence on the currency. A smattering of offshore data releases tonight is unlikely to prompt major market reaction unless there are significant outliers.

The market remains firmly focused on the weekend’s Jackson Hole gathering.

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Daily exchange rates

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