by Mike Jones
NZD
The NZD was the weakest performing currency of its key peers over the past 24-hours, losing 0.60% relative to the USD. It currently trades at 0.8150.
The NZD was weighed on by a general waning in risk appetite that impacted “risk sensitive” currencies.
The NZD/USD was on a fairly steady downward trajectory overnight, trading from around 0.8220 last evening to 0.8150 currently. Still, it remains very much in its tight trading range of the past couple of months. Support is seen at 0.8140 and resistance at 0.8230.
The NZD’s prospects relative to its European peers was no better. The NZD/EUR subsided from around 0.6270 last evening to trade below 0.6220 at present. The NZD/GBP came under selling pressure after the release of the Bank of England minutes suggested less likelihood of further quantitative easing (see Majors). The NZD/GBP fell from 0.5160 to trade around 0.5090 currently.
The NZD also continued its recent decline relative to the AUD, slipping from above 0.7900 to trade around 0.7880 this morning.
Today, all eyes will be on the release of NZ Q1 CPI. There is a good chance it will look tepid, aided by plunging prices of imported electronics and the general heights of the NZD. We are picking a 0.5% advance, which would further clip annual headline inflation, to 1.6%, from 1.8%.
The market has recently revised its expectations to a similar forecast. If anything, we see the risks to our own forecasts to the downside. The release will also be watched across the Tasman, given some correlation in inflation trends between AU and NZ. Our NAB colleagues believe the RBA will cut at its next meeting in May, unless they see an upside surprise in their own CPI release, next Tuesday.
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Majors
A return of some caution in markets has weighed on the “risk sensitive” NZD and AUD. The GBP has been the strongest performer in the past 24-hours.
Overnight, there was a lack of key data releases, but markets returned to cautious mode in the run-up to Spanish and French bond auctions tonight. The Euro Stoxx50 closed down 1.7%, with the Spanish IBEX index down 4.0%.
The EUR/USD was fairly directionless in this backdrop, dropping to touch 1.3060 early this morning, before returning to trade around 1.3130 currently. The greater burden was carried by the “risk sensitive” AUD and NZD.
The AUD/USD has softened fairly steadily over the past 24-hours to trade just above 1.0360 at present.
The JPY also came under pressure in recent sessions as Bank of Japan deputy Nishimura commented that the central bank stands ready to implement additional easing. The USD/JPY traded up from around 80.80 at this time yesterday, to trade around 81.30 currently.
The GBP was the star performer over the past 24-hours. Its prospects were boosted by economic data that failed to disappoint. In fact the unemployment rate in February unexpectedly fell from 8.4% to 8.3%. In addition, the release of Bank of England minutes showed mention of inflation concerns. The committee voted 8-1 against further asset purchases, as member Posen joined the majority. He voted for further purchases at previous meetings.
The GBP/USD surged from 1.5920 to 1.5980 on the releases, later rising to trade around 1.6020. Resistance on the GBP/USD is seen at 1.6060. A break above this level would open the way for further rises.
The USD index touched above 79.80 early this morning, before returning to trade at similar levels to yesterday morning, around 79.50.
All eyes this evening will be on Spain and France’s bond auctions. Given current skittish markets, a take up of bonds below maximum targets, or at significantly higher yields, will likely negatively impact risk appetite. It would also weigh on the EUR.
The US Philadelphia Fed and Existing Home Sales data are also released tonight.
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