NZD falls after better than expected Australian jobs report, RBNZ easing bias, and Japanese signals of more QE

By Kymberly Martin

Over the past 24-hours most currencies have strengthened versus the USD, led by the AUD.

The main exception was the NZD/USD that has fallen around 1.3%, to 0.6310.

Currency performance was based on fundamentals last night, as general risk appetite remained fairly steady at low levels and commodities enjoyed a rebound led by oil.

The divergence in NZD and AUD was most striking in this regard, as they took out the positions of worst and best performers respectively. The NZD/USD gapped abruptly lower on the RBNZ’s Monetary Policy Statement yesterday morning that confirmed the Bank’s easing bias. It stated; “At this stage, some further easing in the OCR seems likely.  This will depend on the emerging flow of economic data.” This was more direct than we/the market had feared and the NZD/USD promptly gave up its rally of the past few days. It trades just above 0.6300 this morning.

By contrast the AUD gained a boost form a better than expect AU employment report yesterday afternoon. The trends in the data fit the story of a pivot in economic activity from the mining to the non-mining states. Forward indicators suggest trend improvement in the labour market should continue. Upward momentum in the AUD/USD continued overnight as commodity prices rebounded. It trades at 0.7090 this morning.

As a consequence of these individual moves, the NZD/AUD lost a lot of ground yesterday. From circa 0.9110, pre-RBNZ, the cross now trades at 0.8900. However the lows of the cross’s range since June is still a little lower, around 0.8750.

Overnight, the USD was a little weaker as the EUR broke above its 200-day moving average, to trade above 1.1280 this morning.

There was some volatile trading in the GBP overnight around the Bank of England’s meeting. The GBP/USD initially gapped higher, later drifting back to its earlier level. A more sustained uptrend took hold in the early hours of this morning. The GBP/USD trades at 1.5470 currently. This has also resulted in a slump in the NZD/GBP, which trades around 0.4080 this morning.

Choppy trading in the JPY last evening was assisted by comments from a Japanese law maker, Yamamoto.  He said he thought that the Oct 30 Central Bank meeting would be a “good opportunity” to increase quantitative easing. The USD/JPY rose to above 121.30 in the late evening but has subsequently returned to trade at 120.70.

It is a relatively light data agenda into the weekend though look out for the US release of the University of Michigan consumer confidence index. This may provide some insights into whether recent equity market ructions are impacting on consumer sentiment.

Kymberly Martin is on the BNZ Research team. All its research is available here.