Opinion: NZ$ holds on big IMF gold sale; UK deficit terrible

However, strong demand for NZD/USD below 0.7000 from both macro and sovereign accounts saw the NZD rebound off its lows. Rumoured sovereign selling of US dollars and a recovery in commodity prices added to the mix, such that NZD/USD eventually reached an overnight high around 0.7050. With EUR still in the doldrums, NZD/EUR reached a fresh 23-month high of nearly 0.5180. With NZ economic growth set to outpace that of the Eurozone, and the RBNZ expected to hike interest rates earlier than the ECB "“ we see more upside potential in NZD/EUR this year. We look for the NZD/EUR to be around 0.5300 by the end of June. December's Crown accounts are due for publication this morning. But it's this afternoon's credit card billings that will be of more significance. For January, these will be a useful test on the pulse of consumer spending "“ especially following last week's underwhelming retail statistics for Q4. We'll need to see a strong bounce, from their big dip in December, in order to affirm a positive trend and see any response from the NZD. Also keep an eye out for RBA Governor Stevens' testimony before the Australian House, from 11:30 (NZT). It's been a bit of a wild night in currency markets. The net result was that the USD finished the night a touch higher against most of the major currencies. Early in the night, a slide in EUR and GBP led most of the major currencies lower. UK public finance figures were nothing short of terrible. The UK reported a January deficit for the first time since records began in 1993. The government's net borrowing requirement totalled £4.3b, against market expectations for a £2.6b surplus. The deficit raised a few questions over whether the UK Government can meet its borrowing target of £178b, increasing the risk of the UK losing its AAA rating. GBP slumped from 1.5630 to below 1.5580 and EUR/USD fell below 1.3560 in sympathy, amid market chatter of heavy selling from speculative type accounts. Later in the night, most of the majors enjoyed a brief gallop higher. US jobless claims for the week ending 14 February were disappointing, rising to 473,000 against expectations for a mild fall. This, combined with rumoured sovereign USD selling prompted a sharp bout of USD weakness. USD/JPY fell to 90.60, EUR/USD popped above 1.3640 and GBP/USD headed back towards 1.5700. Nevertheless, it was not to be. Early USD losses were completely reversed and most of the major currencies finished the night close to where they started. The better-than-expected US Philadelphia Fed index (17.6 vs.17.0) allayed fears about the US growth outlook, sending US interest rates higher. US 10-year Treasury yields ticked up around 8bps to 3.81%, helping underpin the USD. US equities were pretty much flat for the second day running. The S&P500 is currently up around 0.4%. However, a lift in commodity prices was noted as broadly supportive of commodity-linked currencies, most notably CAD. Both gold and oil prices rose a bit over 1% which, combined with a robust rise in the Canadian January CPI (1.9%y/y vs. 1.8% expected), saw USD/CAD slide to around 1.0420. Looking ahead, tonight's speeches from Fed officials Dudley and Lockhart may provide further clarification on the Fed's exit strategy from current unorthodox monetary policies. Any more whispers the Fed is thinking about shrinking its balance sheet (as surprised markets in yesterday's FOMC minutes) will provide further support to the USD. Initial resistance on the USD index is seen towards 80.70, with support likely to be found on dips towards 79.80. * Mike Jones is a BNZ Currency Strategist. All of the research produced by the BNZ Capital team of economists is available here.