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Central bankers signal shift to monetary tightening

BY JOEL HOLMES

Global optimism has continued to support an increase in risk appetites as the coordinated tone of major central banks remains the key focus of investors this week. Despite US GDP numbers expanding this quarter the greenback continuing to trade softly and was heavily sold down, contributing to a rising Australian dollar. The Aussie advanced to 0.7685 in overnight trading, motoring along to a fresh 3-month high. Currently trading at  0.7681, the Aussie continues to be supported by a softer USD, an increase in risk appetites and a significant recovery in iron ore prices. With a bare economic calendar on the domestic front today, traders now turn to the Asian macro-economic calendar, in particular China’s PMI release for direction.  

The New Zealand Dollar is trading lower this morning against all the major currencies. The Kiwi is down over 0.2% against the Greenback falling to a low of 0.7275 during early trading. However, yesterday afternoon the Kiwi found some support after the very positive ANZ business outlook survey was released which indicated a net 25% of businesses are optimistic about the year ahead. Looking ahead today will see the release of Building Consents for the month of May. The NZD/USD pair is currently trading at 0.7296. We now expect any upward push will likely meet resistance around 0.7320. The Kiwi is also weaker against both the Aussie 0.9500 (1.0526) and the British Pound 0.5610 (1.7825).

The Great British Pound has continued its upward trajectory against the U.S Dollar reaching five-weeks highs and trading as high as 1.3011 during Thursdays U.S session. The main driver behind the move was a follow through of Bank of England governor Mark Carney’s comments that have excited markets of UK interest rate hikes down the track. In addition, we are seeing weakness in the Greenback with Trump’s failure to get his healthcare bill through senate and also Janet Yellen saying that interest rates hikes could only be gradual. On the data front, in the U.K net lending to individuals picked up marginally vs an expected fall, unsecured credit rose by £0.2bn to £2.8bn in April and Mortgage approvals in May rose 65.2k from rev. 65.1k in April, coming in stronger than expected. Looking ahead, Current Account and final GDP numbers for quarter are due today. The GBP is being seen to have broken through the 1.2910 channel of resistance, with 1.3050 the next level of resistance.

A shift to risk off environment overnight saw a selloff in equities globally after comments from Central Banks that a shift to tighten monetary policy could be near. S&P 500 was down 1% for the day, and U.S. Dollar index closed 0.5% lower despite a favourable final United States GDP print for the quarter, coming in at an annualized rate of 1.4%. EUR/USD continued its strong rally up 2% to 1.1450 from its lows two days ago after stronger German inflation figures for month of 0.2%. With ECB President Mario Draghi signaling a possibility to start unwinding its ultra-loose monetary policy, the Euro has shown no signs of stopping its current rally. USD/JPY advanced to daily highs of 112.90 before falling sharply to an intraday low of 111.80.