by Raiko Shareef
NZ Dollar
The NZD sat atop the G10 leaderboard for the second day running, as bulls sought a break higher. The NZD/USD is 0.4% stronger at 0.8770.
The NZD/USD spent most of the session tracking sideways, making most of its gains in a snap higher thanks to some exiting of short NZD/USD positions.
Most analysts accept that NZD/USD should be lower on a fundamental basis – the Bloomberg median is at 0.83 by end-2014. But we are mindful that it is an expensive position to hold unless the currency is moving rapidly south.
The bulls looking for further upside must be frustrated by the failure to break the 6 May high of 0.8780. That said, with US data overnight giving little reason to bid the USD higher, those looking for a higher NZD likely still maintain the upper hand in the near term.
Today’s monthly trade balance data should not trouble the scorers. Should 0.8780 break, the three-year high of 0.8840 beckons. On the downside, support will become apparent around the 0.8700 mark.
----------------------------------------------------------
To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.
----------------------------------------------------------
Majors
The USD was little changed, as US inflation data printed largely as expected. The GBP outperformed as the BoE proposed mortgage restrictions that seem less onerous than feared.
The US inflation report overnight, which was to be the data highlight of the week, failed to spark any significant action as it essentially met economists’ expectations. The core PCE deflator rose from 1.4% y/y to pre-release expectations of 1.5% in May.
If anything, there was more attention paid to St. Louis Fed President Bullard’s remarks in a TV interview, who stated that he expects the first Fed Funds Rate hike in Q1 2015. The balance of his comments struck a similarly hawkish chord, including his observation that “The Fed is closer to its goal than many people appreciate…We’re really pretty close to normal”. While the FOMC member does not have a vote on monetary policy this year or in 2015, his remarks are noteworthy due to a recent shift in his bias. Bullard has only recently strayed from broadly neutral into the hawkish camp.
In the UK, the Bank of England released a consultation paper proposing a new loan-to-income (LTI) ratio limit to mortgage lending. The proposed rule would see mortgage lenders unable to extend more than 15% of their new loans to borrowers with a LTI ratio at or greater than 4.5.
The market had expected some tightening of lending criteria, but these measures are fairly minimal. For one thing, BoE data show that around 10% of new mortgages for house purchases have a LTI rate of 4.5 or greater, so banks could actually skew their loan books further towards high LTI loans without running into the barrier. The GBP/USD bounced higher in relief, up 0.3% to 1.7030.
With the week’s data highlights already behind us, there is little to suggest we’ll get much price action into the week’s close. This morning sees the monthly Japanese inflation and employment numbers. Tonight, the U of Michigan consumer confidence is the only release out of the US.
Other news:
*US personal spending rose by 0.2% m/m in May vs 0.4% exp.
Daily exchange rates
Select chart tabs
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.