Global Themes

NZD

Cautious Fed minutes boost Kiwi

Fed's concern about the lack of broad based wage inflation hurts Greenback.

The New Zealand Dollar ticked up half a percent this morning as an immediate reaction to somewhat cautious Fed minutes. Most voting Fed members supported a view that inflation will rise in the short term but stabilize around 2% in the medium term, however several noted that the lack of broad based wage inflation remained a concern. There seemed a consensus that near term economic growth was stronger than anticipated in their last meeting in November, and that recent strong data combined with the pending tax overhaul should set a backdrop for further gradual rate increases.

Market participants looking for confirmation of three or maybe four rate increases this year didn't receive that, and as a result the Greenback sold off. NZD/USD nudged into the mid to high 0.73s, and looks constructive for orders around 0.74.

NZD/AUD hits fresh 6 month highs

Solid Australian wage inflation unable to halt Kiwi's advance v AUD.

Wage inflation seems to be the latest obsession in markets. Australia showed a 2.1% annualised growth in employees' pay for December, but in a reflection of this morning's Fed minutes, a good 10M workers in the private sector saw their earnings increase at only 1.9%, which is right in line with inflation.

The lack of broad based wage inflation consequently saw the Aussie Dollar decline versus its Kiwi counterpart. The cross opens today at its best levels in 6 months.

ECB minutes, UK GDP tonight

European Central Bank closely watched for stimulus exit plan.

Given this morning's reaction to the Fed minutes this morning, tonight's ECB minutes will be closely watched. Any cautious tone might give importers one last look at the 0.6000 level on overnight orders.

Likewise Q4 GDP figures for the UK will be released, with a 0.5% growth forecast perhaps not enough to confirm a Bank of England rate hike just yet. Importers could target the 0.5300 area if numbers disappoint.

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