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NZD Continues to Slide

Pepperstone UUIIFXBR
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Risk assets fell overnight on broad US dollar strength, with the NZD falling over a cent in the lead up to this morning’s employment data. The Ruble also fell 4500 pips against the US Dollar after sanctions were tightened last week and Poland expressed concern about the accumulation of Russian forced on the Ukrainian border. Equities continued their slide that began late last week.

The NZD has fallen 4 cents since early July. The currency has fallen on the central bank jawboning the currency, changing the outlook for interest rates towards a period of stability as well as the general US dollar strength that began at the start of last month. The currency continued to decline into today’s employment data release, falling a quarter of a cent on the announcement that the unemployment rate fell to 5.6% – the lowest it has been since the GFC. While the unemployment rate fell, employment growth rose at a slower than expected pace of 0.4%. Much of the improvement in the unemployment rate was due to the decline in the labour force of 0.3% to 68.9%, resulting in an ambivalent reaction from the market.

Across the water, the RBA kept rates on hold at 2.50% yesterday, with only a slight change to the wording of its statement – this marks one year since the overnight cash rate has been held at this low level. The rate statement continued to express “The most prudent course is likely to be a period of stability in interest rates” – the result was no surprise to analysts. Governor Stevens indicated that the wording of the statement was likely to change before a rate rise would be likely to occur, ensuring strong forward guidance for market participants.

The Pound has risen almost half a cent after UK Services PMI confirmed a continued strong expansion in the sector. Services PMI came out at 59.1 – well above expectations of 58.1 – leading to the rally in the Pound. US Manufacturing PMI was also released overnight with a strong read of 58.7, also indicating a moderate expansion and beating expectations of 56.6. The release saw a slight fall in the Euro to 1.3360.

The news flow will continue to be heavy through the remainder of the week, reaching a crescendo on Thursday night with the ECB Rate announcement and Press Conference. Also of note throughout Thursday will be Australian employment data, which is expected to hold steady at 6.0% unemployment, and the UK Bank Rate Decision – no change is expected yet with UK interest rates and analysts expect them to be held at 0.50%.

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