NZD: 3 Factors In Play, GBP: Near-Term Resilience - Credit Agricole

One risk-correlated and commodity currency that proved to be more resilient overnight was NZD. Three factors seemed to be playing a role. To start with, the NZ employment numbers came in better than expected with unemployment tumbling to a multi-year low. Second, Governor Wheeler signalled that the RBNZ will look through the latest bout of disinflation driven by low commodity prices and thus need not cut rates anytime soon. Third, NZD remained resilient despite weaker dairy prices suggesting that some negatives are clearly in the price.

The above being said, it is premature to call for an end of the NZD underperformance. Indeed, global commodity prices remain under pressure and the longer-term disinflation trend in the New Zealand economy still means that the next RBNZ move is more likely to be a cut, not a hike. In addition, the apparent tightness in the labour markets could be attributed to a drop in the labour force participation rate as well as the continuing strength in construction in Canterbury. Neither of the factors is expected to be sustained and this could point at renewed pick up in the economic slack before long.

GBP has been consolidating of late in response to reports that the UK and the EU have made further steps towards reaching a deal to avoid Brexit. Today’s services PMI said little changed from the month before. That said, the print offered more evidence of the resilience of the UK’s domestic demand driven recovery. In turn, this could corroborate the view that the BoE IR will struggle to exceed the already rather dovish market expectations come Thursday. All that could point at more GBP resilience in the near term.

'This content has been provided under specific arrangement with eFXnews.'

Advertisement
For a live simulators for bank trade positions and forecasts, sign-up to eFXplus