Markets unwind expectations of NZ rate cuts. Hopes fade for a Greek deal with the EU. Australia awaits unemployment data

By Kymberly Martin

NZ Dollar

The NZD/USD has traded lower overnight to sit around 0.7380 at present.

In relatively quiet trading the NZD/USD re-tested resistance approaching 0.7450 yesterday afternoon.

However, the attempt failed and overnight the NZD succumbed to broad USD strength.

Support is now seen approaching 0.7300.

The NZD sits a little higher relative to both the JPY and AUD this morning, but failed to sustain early evening gains relative to the GBP and EUR.

The NZD/AUD has traded in an orderly fashion up to 0.9570. The move has mimicked the widening in NZ-AU interest rate differentials in recent days, as the market has reduced expectations for RBNZ rate cuts.

NZ-AU 2-year swap spreads widened from 137 bps to 142 bps yesterday, from lows last week of 126 bps.

While the BNZ NZ Manufacturing PMI will be released today the main determinant of the NZD/AUD will likely be the release of the AU employment report this afternoon (1.30pm NZT).

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Majors

The USD has broadly strengthened over the past 24-hours. Most notable has been a decline in the JPY and the AUD.

Markets were fairly subdued overnight as there was little in the way of data releases and the market awaits news from Greece’s meeting with its European creditors. Hopes are not high for a resolution. There appeared to be little common ground between the German and Greek positions heading into the negotiations. Meanwhile peace talks kicked off in Belarus between Russia, Ukraine and European leaders. Lingering uncertainty weighed on the EUR/USD. It slipped from 1.1330 to 1.1280.

While equity markets traded without much pulse, the global oil price is staging a rebound from intra-night lows. At one point the WTI price almost touched US$48 but has now returned toward US$50.

In the early hours of this morning (non-voting) Fed member Fisher was once again espousing hawkish views. He said he wanted a March Fed hike but “lost the argument”, with the rest of the committee. He also rebuffed concern about a stronger USD saying it reflected enormous confidence in the US at present. On a relative basis we concur with that view. The USD was broadly stronger overnight trading up to 95.10.

The JPY continued its recent losing streak. From 119.40 the USD/JPY gapped through resistance at 120.00 to now trade around 120.40. Further upside beckons over the medium-term as the Fed begins to hike rates while the BoJ continues to maintain extremely easy monetary policy.

The GBP traded a fairly wide range overnight, ahead of the release of the Bank of England’s inflation report tonight. This will be followed by a Press conference chaired by Governor Carney. The GBP/USD trades at 1.5220 currently.

The AUD/USD pushed lower overnight to trade at 0.7700 this morning, ahead of today’s release of the AU employment report. This has been a bit of a lottery of late. However, consensus looks for -5k for employment change, and the unemployment rate to tick up to 6.2%. Anything worse would only exacerbate the current downward momentum in the AUD. AUD/USD support is seen at the early-month lows of 0.7630. Also look out for a speech by RBA’s Debelle at an FX Week conference in Sydney (11am NZT).

There are a handful of data releases tonight including UK house prices, German CPI (Jan F), EU industrial production and US retail sales.

All its research is available here.