Home Daily Commentaries NZD beaten in to top spot on Tuesday only by the buoyant CAD

NZD beaten in to top spot on Tuesday only by the buoyant CAD

Daily Currency Update

Yesterday in Asia, NZD/USD briefly dipped below 72 cents before snapping back sharply to a best level of 0.7260 in the London morning; its highest since last Wednesday. It extended its gains to 0.7270 and as North American traders arrived at work, it was up against all the major currencies we follow closely here. By the end of the day, the Kiwi had been pushed into second place by a buoyant Canadian Dollar but had still registered solid gains around 0.4% versus both the AUD and GBP, with NZD/EUR more than 0.9% higher.

There were no official economic statistics on Tuesday, but New Zealand’s Fonterra Co-operative Group said that milk production in its home market fell 2% in February due to “difficult weather conditions.” Last month, the firm had reported a 5% fall in January’s milk production on account of dry weather. Indeed, the weather in New Zealand at the moment seems as volatile as the currency itself! In the auction on March 21st, prices dropped for the third consecutive time, as production continued its slow pickup from weaker levels earlier in the season. The run extended to a fourth decline yesterday when the GDT auction saw a slight fall of -0.6% for the overall index.

There are no numbers scheduled for release by the officials at Statistics New Zealand this week, though today we have the ANZ consumer confidence index and on Thursday it’s the QV house price data and ANZ job advertisements. The New Zealand Dollar opens in Asia this morning at USD0.7260 and AUD/NZD1.0590.

Key Movers

The Australian Dollar had a fairly good day on Tuesday, not all of which was solely down to a recovery in US equity markets. AUD/USD opened in Sydney around 0.7660 but this proved to be within 10 pips of its subsequent low reached in the first couple of hours of trading. A glimmer of hope for the rate bulls in the RBA Statement (see below) helped begin a short squeeze which took the pair all the way up to a high in the London morning of 0.7705 but it couldn’t sustain this lofty level even as US stock index futures moved higher into the opening of the cash market. With the DJIA at one stage more than 300 points higher, AUD/USD still slipped back to the 0.7685 area.

To no-one’s surprise whatsoever, the RBA yesterday left official rates unchanged at 1.5%. It was the 18th consecutive board meeting where the RBA has kept rates on hold and equals the previous longest stint without rates changing since the RBA became independent from Federal Treasury, set between January 1995 and July 1996. Indeed, the Cash Rate has been steady for the entirety of governor Philip Lowe’s term in office, having been cut from 1.75% to 1.5% in September 2016 at the final meeting chaired by his predecessor, Glenn Stevens. The key passage for markets in the RBA Statement was, “Notwithstanding the improving labour market, wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time. Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills.”

Just as last month we saw some analysts clutching at straws in the RBA Statement, so too this throwaway anecdotal line about hiring difficulties might offer some encouragement to those still looking for a rate hike this year. The rest of the Statement, however, did little to encourage such hopes and it finished by noting that, “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.” The February retail sales data released tomorrow will now be watched closely to see whether the continued rise in employment has led to any increase in consumer spending. The Aussie Dollar opens in Asia this morning at USD0.7685, with AUD/NZD at 1.0590 and GBP/AUD1.83290.

The British Pound had a pretty mixed performance on Tuesday, down against all three of the major ‘Commonwealth currencies’ but up against both the euro and US Dollar. The GBP/USD pair struggled to get traction in either direction. Having been up to a high around 1.4085 early in the European morning, it then quickly lost half a cent and had three further reversals of at least a quarter of a cent all within a range from 1.4025 to 1.4085 before ending almost exactly at the mid-point.

In economic news, the UK manufacturing sector maintained a steady pace of expansion during March. The IHS Markit/CIPS PMI (to give the index its’ full name) posted 55.1 in March, little-changed from 55.0 in February. The average reading over the opening quarter as a whole (55.1) was the weakest in a year, suggesting that the underlying pace of expansion has been generally slower since the start 2018. IHS Markit, which compiles the report said, “The latest PMI survey provided further evidence that UK manufacturing has entered a softer growth phase so far this year. Although the pace of output expansion ticked higher in March, which is especially encouraging given the heavy snowfall during the month, this was offset by slower increases in new orders and employment. Average rates of increase over the opening quarter as a whole are also down noticeably from the growth spurt seen at the end of 2017. Compared to official data, the performance through quarter one is consistent with only a 0.4-0.5% gain in production volumes, a considerable slide from the fourth quarter’s 1.3% increase.”

Today we’ll get to see the UK construction sector PMI survey and on Thursday we have the service sector report. The GBP opens in Asia this morning at USD1.4055, GBP/AUD1.8285 and GBP/NZD1.9365.

After the dramas in the US stock market on Easter Monday, Tuesday was a much less volatile day with futures on the DJIA moving ‘only’ 350 points from their opening level and the VIX index easing back a full point from 21.4 to 20.4. The US Dollar had a good day despite the rally in equity markets, though this was more a reflection of a sharp fall in the EUR/USD exchange rate than a more broadly-based USD rally. Its index against a basket of major currencies rose from a morning low in London of 89.45 to a best level of 89.85 before slipping back a little into the New York close.
After a lull in the US economic data calendar yesterday, it’s a pretty packed programme today. First up is the ADP employment survey for which consensus looks for a 200k monthly gain after a 235k increase in February which will surely be revised higher to bring it more into line with the actual outturn last month of 313k. later in the afternoon we have both versions of the non-manufacturing activity survey (PMI and ISM) and the February durable goods report. As we digest all that lot, the St. Louis Fed’s President James Bullard – one of the main doves on the FOMC - is scheduled to give a speech on the US economy and monetary policy whilst Cleveland Fed’s Loretta Mester will also be on the newswires.

The Atlanta Fed yesterday upgraded its forecast for Q1 GDP from 2.4% to 2.8% after the ISM manufacturing and constructions spending numbers were released. The non-manufacturing ISM report isn’t an input to its GDP calculation and the next update will come on Thursday after the international trade data is published. The USD index opens in Asia this morning at 89.80.

The Single European Currency had a bad day on Tuesday, falling against every one of the major currencies we follow closely here and in bottom spot by quite a clear margin. Early in the European morning, EUR/USD had reached a high just above 1.2330 but it was then hit by softer than expected economic data and fell almost three-quarters of a cent to a low just below 1.2260; its lowest level in almost a week. Overall, its losses ranged from 0.3% against the USD to 0.6% against the AUD and 1.2% versus the Canadian Dollar.

In economic data, the final Eurozone Manufacturing PMI posted 56.6 in March, unchanged from the earlier flash estimate and down further from December’s series-record high. Markit noted, “The further easing in the headline PMI mainly reflected slower growth of manufacturing production and incoming new business, both of which rose to the lowest extents since November 2016. Growth in new export business (which is not a component of the headline PMI) slipped to a 15-month low.” Rates of expansion eased across all of the nations covered by the latest PMI surveys and across the consumer, intermediate and investment goods industries. The Netherlands, Germany and Austria were the strongest performers overall. All of the other nations covered by the survey also saw solid rates of growth in March. The weakest increases were signaled in France and Ireland.

As for any clues on prices and inflation from the PMI report, “recent lengthening in suppliers’ delivery times has been among the greatest in the survey history, leading to widespread reports of raw material shortages and supply delays. This trend was especially noticeable in the Netherlands and Germany, both of which saw record lengthening in vendor lead times. Average selling prices also continued to rise at a solid clip, albeit the slowest in the year so far, as companies passed on the rise in purchasing costs. There were also reports that the ongoing upturn in demand was leading to improved pricing power.” The EUR opens in Asia today at USD1.2265, AUD/EUR0.6265 and NZD/EUR0.5915.

From a high on Easter Monday of 1.2940, USD/CAD fell a quarter of a cent into the New York close and opened yesterday morning in Europe down another 40 pips to 1.2870. It was steady against the well-bid Antipodean currencies and up against both the EUR and GBP even before the Bloomberg story (see below) about a possible NAFTA deal. By the North American afternoon, USD/CAD was on a 1.27 handle for the first time in almost a week and the CAD had gained 0.8% against the GBP and 1.2% against a very soft EUR to be at the top of our one-day performance table.

A report on the Bloomberg news service yesterday claimed, “The Trump administration is pushing for a preliminary NAFTA deal to announce at a summit in Peru next week, and will host cabinet ministers in Washington to try to achieve a breakthrough, according to three people familiar with the talks. The White House wants leaders from Canada and Mexico to join in unveiling the broad outlines of an updated pact at the Summit of the Americas that begins April 13, while technical talks to hammer out the finer details and legal text could continue, according to the people. They asked not to be identified because the talks are private.” Mexican Economy Minister Ildefonso Guajardo will travel to Washington for meetings with U.S. Trade Representative Robert Lighthizer on Wednesday while Canadian Foreign Minister Chrystia Freeland will arrive Thursday for her own meetings with Lighthizer, and meetings on Friday may include all three countries, the people said.

Away from NAFTA and back on the economy, we should note the Canadian manufacturing PMI index earlier this week rose slightly to 55.7; its 25th consecutive month above 50. Markit noted, “The headline PMI reading in March was supported by a robust and accelerated rise in production volumes across the manufacturing sector… March data pointed to sustained pressure on operating capacity across the manufacturing sector, as highlighted by another solid rise in backlogs of work. A number of survey respondents noted that sales growth had outstripped production capacity at their plants in recent months.” The next focus on data will be the Canadian employment report on Friday, published at the same time as the US jobs report. The Canadian Dollar opens in Asia this morning at USD/CAD1.2805, AUD/CAD0.9840 and NZD/CAD0.9290.

Expected Ranges

  • NZD/AUD: 0.9375 - 0.9470 ▼
  • GBP/NZD: 1.9295 - 1.9510 ▼
  • NZD/USD: 0.7190 - 0.7305 ▼
  • NZD/EUR: 0.5855 - 0.5945 ▼
  • NZD/CAD: 0.9250 - 0.9350 ▼