Ukraine remains tense but EUR strengthens; key Aussie jobs report will set cross rate; much depends on RBNZ tone

by Kimberly Martin

NZ Dollar

The NZD/USD sits above 0.8480 this morning as the market awaits the RBNZ’s meeting today.

In the absence of key data releases over the past 24-hours the NZD has traded a path between 0.8440 and 0.8490, sitting toward the upper end of this range at present.

Today, the RBNZ is almost unanimously expected to raise the OCR from its historic low of 2.50%.

Any deviation from this expectation (unlikely in our view) would prompt a large response in the currency.

Still, even delivery on expectation may prompt the obligatory knee-jerk tick higher in the NZD/USD.

However, more important will be the detail of the MPS. We will be looking for potential upgrades to growth, inflation and 90-day bank bill projections.

Key resistance for the NZD/USD remains at last October’s highs around 0.8540. Support is eyed between 0.8420 and 0.8440.

It will also be an important day for the NZD/AUD cross today.

The AU employment report, to be released early this afternoon (1.30pm NZT), has potential to create some volatility. A softer-than-expected result would emphasise the contrasting outlooks on either side of the Tasman, tempting the cross to re-visit January highs. At present the NZD/AUD trades around 0.9440.

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Majors

Overnight, the EUR extended recent gains, while the USD was broadly weaker.

It was another thin night on the data front. On the geopolitical front the situation in the Ukraine remains tense, although new headlines were limited. As the Ukraine Prime Minister visits Washington to seek much needed financial aid, Russia was reported to be amassing troops near Ukraine’s border.

However, while equities provided modest negative returns and US Treasuries rallied, our global risk appetite index (scale 0-100%) clung on at 63%. Gold pushed up to its highest levels since September last year at US$1370/ounce.

Overnight, the Eurozone released industrial production data for January. Due to upward revisions to the prior month’s data the annual growth rate was seen at 2.1% (1.9% expected). However, the push higher in the EUR/USD early this morning appeared to be more technical in nature. After gapping through resistance at 1.3880, the EUR/USD trades above 1.3910 this morning. This is the currency’s highest level since late 2011, a level the ECB will find increasingly uncomfortable, given the region’s tentative recovery.

Meanwhile the broad USD index weakened in mirror image to the EUR, trading below 79.60 this morning.

Yesterday afternoon, the AUD slipped a little after the release of the AU Westpac March consumer confidence survey. The survey declined for the fourth month in a row, to 99.5, from 100.2. This adds to the decline in confidence from the NAB business survey seen the day before. Overnight, the AUD/USD slipped to almost 0.8920 before finding support and rebounding to trade above 0.8980 currently.

It will be an important day for the AUD today with the release of the AU employment report (1.30pm NZT). Our NAB colleagues see the unemployment rate rising to 6.1%, assuming the participation rate remains at 64.5%. They see the labour market continuing to deteriorate to a 6.5% unemployment rate in the year ahead. Consensus expects 15k additions to employment today and for the unemployment rate to hold in at 6.0%. A softer result would likely see the AUD/USD under pressure. The other data with potential to impact on the AUD are Chinese retail sales, industrial production and fixed assets, due this evening.

Tonight the ECB publishes its monthly bulletin and US February retail sales data are released.

All its research is available here.