Federal Reserve

The Kiwi Dollar Stumbles with FED Talk to Drive the USD Today

Earlier in the Day:

Economic data out of Asia this morning was limited to 4th quarter employment numbers out of New Zealand.

In the 4th quarter, New Zealand’s unemployment rate fell to an 8-year low 4.5% from a 3rd quarter and forecasted 4.6%. In spite of the improving labour market conditions, the underutilization rate was reported to be at just over 12% by Stats NZ, considered to be on the higher side. The underutilization rate is considered to be as relevant as the unemployment rate.

Annual wage inflation increased by 1.8% in the quarter, with the pace of wage growth easing from the 3rd quarter’s 1.9%.

The Kiwi Dollar moved from $0.73008 to $0.73408 upon release of the figures, before falling into negative territory at the time of writing, down 0.46% to $0.7308 for the day.

Focus shifts to tomorrow’s interest rate decision that is accompanied by the monetary policy and rate statement, which will undoubtedly impact the Kiwi Dollar, with the markets expecting rates to be left unchanged. While rates are unlikely to move, recent Kiwi Dollar strength could see the Bank jawbone the Kiwi Dollar, with softer 4th quarter inflation likely to push the chances of rate hike further back to next year.

Elsewhere, the Aussie Dollar was down 0.3% to $0.7882, with the Japanese Yen up 0.26% to ¥109.27 against the U.S Dollar, the gains in the Yen coming in spite of a bounce back in the Asian equity markets through the early part of the day. The Nikkei led the way, up 2.21% at the time of writing, with the Hang Seng and ASX200 up 1.22% and 0.96% respectively, while the CSI300 reversed earlier gains, down 1.08%.

The Day Ahead:

For the EUR, economic data scheduled for release is limited to Germany’s December industrial production figures this morning, which are forecasted to be EUR negative. We will expect the EUR to show little response to any soft numbers following December factory orders having surged by 3.8% in December, according to figures released on Tuesday that suggests another jump in production is on the cards in the months ahead.

On the political front, news of Merkel having to accommodate the demands of the SDP will not have helped the EUR at the start of the week, while the EUR managed to find some support ahead of the European open, up 0.11% to $1.2391 at the time of writing, a pickup in market risk appetite easing demand for the Dollar.

For the Pound, it’s been a particularly rough week, falling 1.2% to Tuesday’s $1.3949 close, with the risk off sentiment and concerns over the Theresa May and Brexit adding fuel to the fire.

In spite of the early part of the week slide, expectations are for the BoE to take a hawkish stance in tomorrow’s Monetary Policy Committee meeting. While rates are expected to remain unchanged, an upbeat outlook on the economy and labour market conditions could provide some upside for the Pound. Carney is certainly not concerned with the Pound’s current levels and, with the need to curb inflationary pressures, an uptick would likely be well received.

On the data front, stats are limited to January house price figures that will have limited to no impact as the market returns to normal after an aggressive sell-off in the early part of the week.

At the time of writing, the Pound was up 0.12% to $1.3966, with $1.40 in its sights.

Across the Pond, while there are no material stats scheduled for release, FOMC voting members Dudley and Evans are scheduled to speak, which will be of particular interest to the global financial markets. Non-voting member Bullard had tried to ease concerns of a jump in inflation following the better than expected wage growth figures released last week. Any hawkish commentary this afternoon could reignite the market vol, whilst also giving the Dollar a boost.

At the time of writing, the Dollar Spot Index was up 0.03% to 89.614, easing back from an early intraday high 89.661 to leave the Dollar down 2.77% year-to-date.

Yields have eased back from the start of the week highs and the markets will certainly be monitoring government bond yields later today, with U.S equity futures seeing red across the board this morning.

Across the border, stats out of Canada are limited to December building permits, which are unlikely to influence, with disappointing trade and PMI figures released on Tuesday and a first half of the week slide in oil prices leaving the Loonie on the back foot.

At the time of writing, the U.S Dollar was up 0.17% to $1.2513 against the CAD, with direction for the day ahead in the hands of Dudley and Evans.