By Kymberly Martin
Friday’s currency ranges were not large.
Overall, the NZD outperformed while the JPY was the weakest currency.
Over the weekend the People’s Bank of China announced a 25 bp cut to both the 1yr lending rate (to 5.35%) and the deposit rate (to 2.5%).
This follows the cut to the RRR on 4 Feb. Our Asia strategist believes that China’s easing cycle will likely continue with further cuts in coming week’s/months.
She expects the USD/CNY to trade towards 6.30 by end-Q1. History suggests this would likely be associated with AUD weakness.
We would therefore look to fade any knee-jerk AUD gains today. The AUD/USD ended last week at 0.7810.
On Friday night markets were fairly orderly despite a fairly full data calendar, including some surprises.
Most notable was a 3.3% rebound in the WTI oil price and a significant disappointment on the US Chicago PMI (Feb). While the USD index suffered a little volatility it ended the week almost unchanged on the day at 95.30. This is not far from its highs since late-2013.
The JPY was the weakest performer on Friday night as the USD/JPY gapped higher. It briefly pushed toward 119.80 before ending the week at 119.60.
In the day ahead there is a plethora of PMI data releases for February. Key to watch will be the US ISM which may suffer from some of the softness seen in the regional Chicago PMI.
NZD was one of the strongest performing currencies on Friday, gaining 0.40% against the USD.
It was on the ascendancy from early on Friday morning, a move that was sustained after the release of the solid ANZ business confidence survey.
The NZD/USD ended the week at 0.7560. Significant resistance for the NZD/USD remains at the 0.7600 level, while support will be encountered on any pull back toward 0.7420.
The NZD/JPY pushed higher on Friday night, taking the cross back to its highest levels since late-Jan. It ended the week just below 90.50, still well short of the Dec highs around 94.00.
Today’s domestic highlight will be the release of the NZ Q4 terms of trade. Due to the drag from the dairy sector we expect a 3.2% drop in the quarter. We think this will mark a near-term trough in the terms of trade given oil price declines and the recent bounce in dairy prices.
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