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Market Update 17/05/2024

Welcome to our daily market update, where we help keep you informed on the latest happenings in the world of FX.
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The USD recovered its some losses against its G10 counterparts following the release of US CPI data the previous day. Bond yields lifted as well, and the US 10-year rose 4bps to 4.38%. However, the NZD did not experience significant movement and is flat around 0.6120.

Initial US jobless claims fell by 10k to 222k, following a sharp rise in New York claims the previous week due to seasonal factors. Industrial production in April remained flat, with no growth at 0.0% after a revised 0.1% increase the month before. This stagnation was mainly due to a decline in factory output, indication that the manufacturing sector is having difficulty gaining momentum.

Going forward, the outlook will depend on the USD’s performance and the upcoming announcement from the Reserve Bank of New Zealand (RBNZ) regarding interest rates. If the RBNZ keeps the OCR unchanged at 5.50% and adopts the dovish tone, expectations for the interest rate gap between NZ & US will decrease, leading to a weaker NZDUSD. But if RBNZ adopts the hawkish tone, the expectation for a greater interest rate gap will increase, resulting in a stronger NZD. The NZDUSD is currently below the Fibonacci level of 0.6142, which it hasn’t been able to surpass. The next resistance area to monitor is between 0.6150 with a support around 0.6080.

Australia’s labour data from yesterday was mixed. Employment increased by a strong 38.5k in April, Unemployment rate also rose to 4.1% from a revised 3.9%. The total hours worked remained unchanged for the month but were 0.8% lower than the previous year. The decline in hours worked is significant, as larger y/y decreases have only occurred during the pandemic, and the early 2000s mid-cycle slowdown. The AUDUSD briefly rose above 0.6700 but quickly dropped back to 0.6680. NZDAUD continued to climb, reaching a 3-week high of 0.9167 this morning.

JPY was the weakest major currency overnight with USDJPY increased by 0.9% to 155.35, reversing all the movement following the CPI release. NZDJPY also rose to just above 95.00. Despite Japan’s GDP shrinking by a larger-than-expected 0.5% quarter-on-quarter in Q1, there was minimal market reaction. This ongoing weakness, marked by private consumption shrinking for the fourth consecutive quarter, complicates the monetary policy outlook. It raises doubts about the Bank of Japan’s ability to tighten monetary policy.

On the economic data front today, New Zealand’s Producer Price Index (PPI) input & output are set to be released, followed by various Chinese data later in the afternoon, including new home prices at 1:30pm and Retail Sales, Industrial Production, and the Unemployment rate at 2:00pm NZT.

Later in the evening, Eurozone Consumer Price Index (CPI) data and the US Conference Board Leading Index will be released, along with several speeches from Federal Reserve members to conclude the week. Fed officials Waller, Daly, and Kugler are scheduled to speak in the early hours of Saturday and Sunday morning. Fed Chair Powell will then kick off the week ahead with a speech at 7:30 am on Monday morning. Market observers will closely analyze these speeches for insights into potential Fed rate cuts and the factors influencing their decisions.

Here are the latest mid-market rates:
Currency Pair Mid-market rate
NZD/USD 0.6122
NZD/AUD 0.9166
NZD/JPY 95.15
NZD/CNY 4.4233
NZD/EUR 0.5634
NZD/GBP 0.4831
NZD/HKD 4.7766
NZD/SGD 0.8239

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