When From the Floor caught up with Jeff Halley at Saxo Bank's Singapore trading desk, he told us that it had been "an emotional day". The reason? A series of tempestuous jags in the kiwi's normally flat flight pattern appear to have given FX bird-watchers (and our own Morning Markets) a case of whiplash.
The late-session move arrived on the back of a fairly eventful Asian trading day, as the Shanghai Composite rallied 2.8% ahead of a flood of new IPOs this week. The Hang Seng index was also on the move, advancing 4%, while Australian markets provided the day's sombre baseline, dropping 0.5% on the back of a five-day losing streak in iron ore prices.
Kiwi takes flight
But back to that troublesome bird... Halley said that there exists a "clear bias" for traders to sell the NZD on the expectation of interest rate cuts at the central bank, and early-session trading was entirely in line with that. As such, when Wellington released a soft PPI print, markets overlooked the relatively minor significance of this data point and sold the kiwi down to 0.7360 against USD.
The plunging bird found an updraught of support around 0.7380, but it was a late-session inflation print that really gave it wings. The Reserve Bank of New Zealand upped its expectations for inflation two years ahead from 1.8% three months ago to 1.85% today.
The resulting sea change reflected a sudden unease concerning the likelihood of a June rate cut and the bird soared to the stratosphere – or at least to 0.7440 before finding a new cruising altitude around 0.7415. According to Pierre Magnussen at Saxo Bank's FX Options desk, a new Bloomberg report now puts the likelihood of a June rate cut at below 50%.
But the kiwi was not the only creature spotted over the South Pacific...
Migratory patterns of the Australian dove
Where the kiwi soared like a rare sort of Antipodean hawk, the Aussie dollar plunged on the release of the Reserve Bank of Australia's latest minutes. The print showed a skittish central bank whose finger appeared to be hovering over the rate cut button. The Aussie dollar sold down to 0.7965 on the release, rallying slightly to 0.7980 (and briefly back to 0.80) as markets digested the dovish data (white feathers, one imagines, in its maw).
According to Saxo Bank head of FX John J Hardy, it could have been worse. "I am a bit surprised that markets did not mark it down more vigourously," said Hardy, adding that 0.7925 remains a key level to watch in AUDUSD.
Hardy also pointed out that a break of the 0.7925-0.7929 level to the downside could see the pair tumble down towards 0.78. This, he adds, would say as much about USD strength as it would about AUD weakness.
Greenback back in green
Last Friday's poor US data may have briefly marked the USD as an unwanted man, but F. Scott Fitzgerald was wrong: there are plenty of second acts in American life, especially in finance.
The greenback has put in a strong performance so far this week, with Hardy noting that "I'm really rather impressed" with the dollar's comeback. According to Hardy, tomorrow's Federal Open Market Committee minutes are likely to be a bit of a snooze, but today's housing starts figure could provide significant upside if it surprises in that direction.
This data point has been troublingly soft for a while now, so Hardy says that a sign of life here "could be a catalyst".
Looking at the pairs, Hardy tells us that the key levels to watch for USD strength are 112.50 in EURUSD ("this needs to be taken out" to confirm the rally, he says), 120.50 in USDJPY and of course the 0.7929 level in AUDUSD.
To Russia with love
After all of these surprising currency developments, From the Floor was admittedly ready for a spot of the familiar when it came to bonds, but this was not to be. When we spoke with fixed income trader Michael Boye in Copenhagen, in fact, we were greeted with the following question: is Russia the new safe haven?
Anyone who was within a country mile of a trading floor back in December would recall the utter incompatibility of the terms "Russia" and "safe haven", but we suppose Russian life is as full of second acts as its stateside counterpart. According to Boye, investors are flocking to Moscow and CDS spreads in USD-denominated Russian bonds have narrowed from over 600 to 300 basis points.
This development, of course, is due to the perceived stabilisation of the Ukraine situation as well as the recovery of Brent crude, but still... December wasn't so long ago!
Finally, we turn to Greece to provide us with our choral coda. According to Boye, media are providing investors with a distorted view of the situation, with Greek reports of a European Commission compromise yesterday later shot down by EU officials. All in all, he notes, we are seeing a great many optimistic headlines but yields are spiking in spite of all that.
When in doubt, From the Floor trusts the numbers.