The hunt for a stronger US dollar continues unabated this morning with Asian and Australasian currencies running lower as we open the new week. There is very little fresh impetus behind these moves, markets are simply continuing to grow their expectations of when the Federal Reserve will begin tightening monetary policy in the country. While the market is only now starting to agree with our assessment of a Q2 rate rise, there is still a lot of upside that can be gained for the greenback.
The biggest mover overnight has been the New Zealand dollar after the Reserve Bank of New Zealand announced that it had entered into the market to sell the currency in a bid to weaken it. The RBNZ sold over $500m over the course of the month of August in what is seen to be the first intervention since 2007. According to comments attributed to Prime Minister John Key, a Goldilocks level for the NZD is around 65 US cents to the Kiwi, that is 17% below current market pricing. With interest rates at 3.5% in New Zealand, the NZD will always benefit from carry positive flows as the chasing of yield continues. Whether this is contiguous with an interventionist policy will remain to be seen but rates won’t be heading higher any time soon, that’s for sure.
AUD is also lower on the session as traders continued to lessen their bets on the currency maintaining its current run of strength. Other currencies within Asia including the Malaysian Riggit, Indonesian rupiah and the Taiwanese dollar are all also coming lower to multi-month lows on the overall strength of the USD.
The weekend’s protests within Hong Kong have seen the HKD wobble as well. A 0.07 cent move is nothing in the G10 currency sphere but is a huge move considering the peg that the currency operates with the US dollar. Intervention by the Hong Kong Monetary Authority may be needed to keep the HKD stable. Of course, China’s patience for dissent is not one to be tested and markets will be looking for a quick, if rather brutal cessation of these protests.
EUR/USD is below the 1.27 level this morning – another casualty of the USD strength – and there are fears/hopes that tomorrow’s preliminary CPI reading for the Eurozone will maintain or indeed plumb new lows in price growth. German CPI, due this afternoon, could see a dip into deflation on a month-on-month basis with the overall yearly number slipping to 0.7%. Eurozone economic confidence is also due today with markets looking to last week’s German IFO disappointment as an indicator of what could be coming. Last week’s IFO number slumped to the lowest since December 2012 and today’s confidence number is due at 10am.
Highlights for the rest of the week include the final reading of Q2 GDP for the UK tomorrow, the influential Japanese Tankan survey on Wednesday morning alongside the PMIs that signify the start of a new month. Thursday is European Central Bank day and Friday sees the release of the latest payrolls announcement.
