WTI oil price up over 6%; NZ specific commodity price movement will have more influence on NZD; cyclical trough in NZD/USD not seen yet; volatile night for GBP on rising unemployment

By Kymberly Martin

Commodity-linked currencies have enjoyed a rebound while the ‘safe haven’ CHF and JPY have underperformed.

Overnight, equity markets continued their rebound while the WTI oil price has experienced a 6%+ rise.

Equities were led higher by commodity related sectors in the US and financials in the Eurozone. In this environment, it is unsurprising to see commodity-linked currencies outperform. This includes strong performance from the CAD, NOK, AUD, NZD and Russian Ruble. The CAD has led gains in developed market currencies, up around 1.5% against the USD since late last evening.

Conversely, the ‘safe haven’ JPY and CHF fell from favour overnight as the market’s risk appetite improved. From evening lows near 113.40 the USD/JPY has traded up to 114.20.

The GBP experienced a bit of a volatile night. It was jolted around by the release of the UK employment report. The market seemed unsure whether to focus on the increase in the earnings number or rise in the unemployment rate. Overall, the GBP/USD is trading a little higher this morning around 1.4320. 

The AUD and NZD have pushed higher in the early hours of this morning along with the rebound in the global oil price. From early evening lows near 0.6550 the NZD/USD now trades at 0.6620.

We continue to expect that outlook for NZ specific commodities, primarily dairy, will hold greater sway over the currency over the medium-term.

We believe we have not yet seen the cyclical trough in the NZD/USD and expect it to trade down toward 0.6000 within the year. In the near-term, resistance remains at the 200-day moving average of 0.6680, while support will likely be encountered on any pull-back toward 0.6500.

The US Fed Minutes from its last meeting will soon be released this morning. The market may not assign much weight to recorded comments given subsequent developments since the late January meeting.

The fate of the AUD/USD today will likely be influenced by the release of the AU employment report. Ahead of this notoriously volatile series, the market prices around 34bps of rate cuts from the RBA, for the year ahead, similar to pricing for RBNZ action. Our NAB colleagues continue to see the RBA having a high hurdle to implement further cuts.

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Daily exchange rates

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for(i=0;i

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