by Kimberly Martin
NZ Dollar
The NZD declined along with most of its peers after the release of the US payrolls report on Friday night. It ended the week just above 0.8460.
Friday was all about anticipating the US payrolls report. The NZD/USD climbed gently ahead of the release, to above 0.8520, its highest level since October last year. However, the delivery of a better-than-expected report boosted the US against most of its peers, the NZD being no exception (see Majors).
After the payrolls report the NZD also gave up earlier gains against its European peers. From above 0.6130 prior to the report the NZD/EUR declined to end the week around 0.6100.
The NZD/AUD bounced off intra-night lows below 0.9300 to end the week around 0.9330.
More broadly, the positive surprise on US payrolls resulted in the NZ TWI pulling back from close to all-time highs. It ended the week around 79.10, a little below last April’s highs of 79.70.
This week attention will be firmly back on the local agenda as the RBNZ meets on Thursday. We expect the RBNZ to begin the global process of ‘normalising’ rates with a 25bps hike at the meeting.
While this outcome is almost fully priced by rates markets, delivery will likely still see a knee-jerk pop higher in the NZD. However, more important than the rate hike will be what the RBNZ’s MPS says about the future path of the OCR (see Fixed Interest).
Today, the NZD along with the AUD may feel some downward pressure given the delivery of disappointing Chinese export data over the weekend (see Majors). The only domestic data scheduled for today is NZ manufacturing activity and the REINZ housing report. Neither is likely to be massively market moving. Key NZD/USD resistance sits at 0.8520. Support is eyed between 0.8420 and 0.8440.
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Majors
The USD strengthened on the back of the US payrolls report on Friday night. The CAD was the key underperformer.
Friday night was all about the US payrolls report. The much anticipated report showed a stronger than expected February result (175k vs. 149k expected) and upward revisions to the previous report. However, the unemployment rate was shown to tick up from 6.6% to 6.7%.
The USD that has been dribbling lower into the delivery of the report surged higher on the result. The USD index ended the week a little higher overall, at around 79.70. Equity markets appeared less sure of how to respond. The S&P500 ended virtually flat and the Euro Stoxx 50 down 1.6%, as our global risk appetite index (scale 0-100%) continues to hover around 65%.
The weakest performing currency on Friday was the CAD. The USD/CAD lurched from 1.0980 to above 1.1080 as the release of the Canadian employment report coincided with the US release. The report showed the Canadian unemployment rate steady at 7.0% but employment declining 7k in February (+15k expected). The two reports highlight the pitfalls of monetary policy targeting a single labour market metric (the unemployment rate).
European currencies experienced a fair amount of volatility around the delivery of the US payrolls report. Ahead of the release the EUR/USD had climbed above 1.3910. It was then knocked toward 1.3850 before ending the week around 1.3870.
Moves in Australasian currencies were less dramatic. Earlier on Friday the AUD had briefly dipped after RBA Governor Stevens said that an AUD above 90 cents is above the RBA’s assessment. However, recall in the past that he has said 0.8500 is closer to equilibrium. Therefore the downshift in the AUD did not extend far. Post the US payrolls report the AUD/USD drifted lower from 0.9120 to close the week at 0.9070.
The AUD looks set to open under downward pressure today following the sharp decline in Chinese February exports reported over the weekend (-18.1%y/y vs. 7.5% expected). However, China also reported falls in CPI and PPI on Sunday that should allay fears of the PBoC moving to a tighter monetary policy stance anytime soon.
Otherwise it is a fairly quiet start to the global data calendar with just the Japanese BoP and final reading of Q4 GDP scheduled for today.
Other news:
* German IP grew 0.8% in January (0.8% exp.), and the previous month was revised up to 0.1% (-0.6% prev.)
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