Market Update 28/05/2024

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Globally it was a quiet start for the week with US & UK markets closed for public holidays. In Europe, ECB Governing Council member Villeroy proposed that the central bank might lower interest rates in both June & July, despite some other ECB members being hesitant about consecutive cuts. At the same time, ECB Chief Economist Lane gave a strong signal that a rate cut is expected next week but emphasized that policy will need to stay restrictive throughout 2024. European equities went higher, the yield on the 10-year bund fell 3.7bps to 2.55%. Even a small hint of additional dovishness from the ECP puts pressure on the EUR, particularly against the GBP, bringing it to its lowest level since August 2023.

NZD outperformed against the USD overnight, reaching 0.6153, 1 pip higher than the post-RBNZ level seen last week. The markets are waiting for US Personal Consumption Expenditure (PCE) data to be released later this week. The upcoming National Budget on Thursday would not have a significant impact on the NZD, with no major local economic data expected until GDP figures in mid-June ad CPI data in July, the NZD’s movement for the rest of this week will likely be influenced by the USD and comments from various Federal Reserve officials before their quiet period ahead of 13^th June Fed meeting. The current NZDUSD support level sits at 0.6100 & 0.6084 and resistance around 0.6170 & 0.6210. If it breaks through 0.6210 then the next target level would be 0.6400.

Along with NZD, the AUD outperformed against the USD too, traded to 0.6660. NZDAUD is trading tightly around 0.9240, with resistance at 0.9280 and support at 0.9200. The long-term range might remain between 0.9000 & 0.9400.

NZDJPY hit a new 17-year high just above 96.50. Bank of Japan (BoJ) Governor Kazuo Ueda and his deputy suggested that there is room to gradually raise interest rates now that Japan has moved away from a 0% inflation norm. Deputy Governor Shinichi Uchida mentioned in a speech at the BOJ’s annual international conference that, while achieving a stable 2% inflation rate remains a major challenge, they are nearing the end of their efforts to overcome deflation.

NZDEUR traded to a new 2-month high of 0.5670. After bouncing off the 0.5525 support level in early May, it is now testing resistance at 0.5700 influenced by dovish signals from the ECB. If it breaks through this level, the next target would be 0.5750.

It’s going to be bit quiet on the data front today, with Australian Retail Sales will be the main focus at 1:30pm NZT. Overnight, US Consumer Confidence is expected to show a slight decline but isn’t likely to impact the market significantly. The market’s attention is expected to be more on the upcoming inflation reports later in the week from Australia, Europe & Japan.

Here are the latest mid-market rates:

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