FX market outlook

FX market outlook

Kiwi tumbles after RBNZ; euro pressured by European political woes.

The Kiwi was in focus in today’s Asian session as the Reserve Bank of New Zealand (RBNZ) announced its decision to leave rates on hold at a record low of 1.75 percent. This was no surprise but the central bank signaled that inflation remained subdued and any tightening in policy might be at least two years away.

In a statement, RBNZ Governor Graeme Wheeler said a decline in the exchange rate is needed. The New Zealand dollar fell sharply against the greenback soon after the RBNZ policy announcement, pulling away from a three-month high of $0.7374 hit earlier this week, to reach low of $ 0.7190 by late Asian session.

The Australian dollar moved lower after the Housing Industry Association revealed that new private home sales for December rose 0.2 per cent year-on-year after growing more than 6 per cent a month earlier. The Aussie fell to a session low of $0.7609 from an earlier high of $0.7645.

Aside from the economic data out of the Asian session, the market’s sentiment remained risk off as investors continue to be concerned about the upcoming elections in France, as well as the Greek debt crisis and US President Trump’s policies.

The risk off environment was evident in the flight to safety, giving the greenback strength against the euro and the pound. EUR/USD slid to $1.0669 while GBP/USD traded to $1.2495. The yen was supported by safe haven demand but after USDJPY dropped below 112 yen yesterday, the pair made a recovery to 112.36 by late Asian session trading. Gold maintained gains made after rising to a three-month high above $1244 an ounce yesterday.

Crude oil recovered some losses after falling heavily yesterday on the EIA report which showed a massive build of 13.8 million barrels. This was much higher than anticipated and also comes after the big build in API crude inventories earlier in the week. WTI crude is back above $52 a barrel at $52.82 after dipping to $51.20 a barrel yesterday.

Looking ahead to the rest of the day, US jobless claims data will be the main data point the markets will focus on. Also important to watch will be speeches by FOMC member Charles Evans and Bank of England Governor Mark Carney.