By Kymberly Martin
The USD has rebounded in the early hours of this morning.
The NZD has been the weakest performing currency since the start of the week.
Once again markets have been fairly orderly overnight, though with slight divergence on either sides of the Atlantic. US equities are up modestly and credit spreads slightly narrower while the reverse is true for Europe.
Overall our global risk appetite index (scale 0-100%) hovers at a fairly steady 60%.
The USD index drifted lower for much of the night as the EUR strengthened on the back of Eurozone data that met, or slightly beat expectations. The fall in the Eurozone unemployment rate was notable, though the outright level remains high at 11.2%.
However, the USD took over in the early hours of this morning after the release of US Manufacturing PMI data (ISM, Markit) that were close to, or exceeded expectation. There was likely some relief the data were not worse after the poor Chicago PMI. The USD index has rebounded this morning along with US bond yields. It trades at 95.40. Meanwhile the EUR/USD has fallen from overnight highs around 1.1240 to trade at 1.1190 currently.
The JPY was a victim of the USD’s early morning strength. The USD/JPY has popped its head above 120 again. It trades at 120.10 this morning, with a strong band of resistance remaining between 120.50 and 120.80. Ultimately we see the JPY weakening further in light of diverging US/JP monetary policy in the year ahead. We see the USD/JPY at 123.00 by year-end.
The AUD/USD traded without too much pulse for most of the night, in the lead-up to today’s RBA meeting. With the market now pricing around a 60% chance of a cut today, we are all but guaranteed a significant AUD reaction whatever the RBA does.
The AUD/USD has traded a fairly tight range over the past month since the RBA delivered its last cut. The bounds of this range could easily be tested today. The upper-end sits around 0.7910, and the lower end at 0.7640. Currently the AUD/USD trades mid-range at 0.7770.
NZD/USD will also likely be impacted directionally by AUD moves today. However, if the RBA were to deliver a cut the NZD/AUD cross would be a likely beneficiary and vice versa. Currently, the NZD/AUD trades at 0.9670 with resistance seen at last month’s highs of 0.9710.
The NZD/USD has trickled lower over the past 24-hours.This was despite the morning’s NZ terms of trade figures that fell less than expected. Weakness in the dairy sector was offset by some solid increases in other export prices. Overall it looks as if NZ’s terms of trade fell 4.6% in 2014 but may rebound 5.6% in 2015.
The NZD/USD currently trades around 0.7510. We continue to see support on any further pull back toward 0.7420.
Today, eyes will be on the release of the ANZ commodity index.
However, the main domestic event for the NZD in the day ahead will be the GDT dairy auction scheduled for the early hours of tomorrow morning. The market is likely hopeful the rebound in average prices seen at recent actions can extend. A solid auction would help support the NZD near-term.
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