Commodity-linked currencies were the outperformers over the past 24-hours with the NZD/USD leading the way.
Market sentiment in general improved overnight, as downward momentum in the China equity market eased, and other equity market and commodity prices rebounded.
Our global risk appetite index (scale 0-100%) has rebounded from 51% to 58%.
The broad global CRB commodity prices index has rebounded around 0.75% overnight, with participation from oil, gold and iron ore.
In this backdrop, “commodity-linked” currencies were natural beneficiaries.
The CAD/USD pushed higher in the early hours of this morning, along with the global oil price.
This was despite a disappointing Canadian raw materials price release earlier in the night. The USD/CAD has traded down from 1.3040 to 1.2920 currently.
The AUD/USD was similarly buoyed overnight. It once again broke through 0.7300 early last evening, and this time the move sustained. The AUD/USD trades at 0.7330 this morning.
There is little on the AU agenda ahead of tomorrow’s scheduled speech by RBA Governor Stevens.
Like most of its peers, direction in the AUD/USD over the next 24-horus will likely be significantly determined by tomorrow morning’s US FOMC meeting.
The GBP/USD was spurred off intra-night lows by the release of UK Q2 GDP. Although only in line with expectation, the market appears to have been positioned for a disappointment.
From 1.5530 the GBP/USD now trades at 1.5600.
But the NZD/USD has been the key outperformer over the past 24-hours.
It has gained steadily since yesterday morning to be around 1.2% higher this morning. Having briefly traded above 0.6700 in the early hours of this morning it now sits at 0.6680.
Similar to the moves seen in NZ rates the market appears to be pre-positioning itself ahead of this morning’s RBNZ speech.
If the Bank espouses a somewhat balanced view of the economy without labouring the risks associated with the dairy sector, the NZD/USD could extend its current bounce.
However, we see resistance approaching 0.6770. Our medium-term view remains for renewed NZD/USD weakness, once the market returns to the prospect of further rate cuts from the RBNZ in the backdrop of a US Fed preparing to hike.
Tomorrow morning’s US FOMC meeting will provide the latest update of the Fed’s thinking in this regard.
We expect the Fed may not say enough to yet spur the next sustained leg of broad USD strength, but will sound sufficiently committed to hikes to provide USD support.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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