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Risk appetite started on shaky footing on the back of an explosion in the U.K., but the tides soon turned in favor of higher-yielding currencies despite a lack of economic catalysts.

  • NZ’s government releases annual budget outline
  • Chinese yuan surges on reported dollar-selling by state-owned banks

Major Events/Reports:

New Zealand budget released

A few hours ago New Zealand’s Finance Minister Steven Joyce read his first budget speech, which generally presented a positive outlook.

A quick glance at the official report tells us that the government expects rising surpluses, average wages, and jobs created in the next three years.

Aside from cash surpluses, the government’s fiscal priorities also include reducing net debt from 20% of GDP to around 10% – 15% of GDP by 2025; raising infrastructure spending, and simplifying and adjusting New Zealand’s tax and transfer system.

Surprisingly, the New Zealand dollar WEAKENED after the budget release. One possible explanation is that the strong outlook was already priced in and that the bulls had taken their profits after the release.

Yuan surges after Moody’s downgrade

It was a good day to be a yuan bull, as the currency was pushed higher from all sides. For starters, the People’s Bank of China (PBoC) set its USD/CNY midpoint rate at 6.8695 today, which is lower than yesterday’s 6.8758 fix.

Meanwhile, onshore spot yuan was 0.23% higher at 6.8737 by the end of the Asian session. Same goes for offshore yuan, which hit a two-month high before trading at 6.8654 against the dollar.

There are no official reports and announcements, but a few traders have alleged that China’s state-owned banks are behind the dollar’s selloff against the yuan. Not surprising, especially since the yuan’s daily trading volume hit $17.46B by midday compared to $23.79B for the full previous session.

Recall that ratings agency Moody’s downgraded China’s credit rating yesterday, citing possible “erosion” of China’s financial strength and slowdown of growth. China’s Finance Ministry was quick to criticize the downgrade, saying that Moody’s used “inappropriate calculation method.”

Major Market Mover(s):

JPY

USD/JPY’s pause from its post-FOMC minutes price action helped propel the other yen crosses higher across the board.

USD/JPY stalled near its session open price, which was enough for yen bears to push EUR/JPY 27 pips higher (+0.22%) to 125.43, AUD/JPY 8 pips higher (+0.10%) to 83.76, and GBP/JPY 22 pips higher (+0.15%) to 144.86.

NZD

Surprisingly, the New Zealand dollar WEAKENED after the budget release. One possible explanation is that the strong outlook was already priced in and that we’re seeing a buy-the-rumor-sell-the-news scenario.

NZD/USD slipped by 6 pips (-0.09%) to .7041, AUD/NZD is up by 19 pips (+0.18%) to 1.0659, and GBP/NZD is up by 38 pips (+0.21%) to 1.8433.

Watch Out For:

  • Switzerland, Germany, and France’s markets out on Ascension Day holiday
  • OPEC meetings start today
  • 8:30 am GMT: U.K.’s second GDP estimate expected to remain at 0.3%
  • 8:30 am GMT: U.K. preliminary business investment (q/q) (0.3% expected, -0.9% previous)
  • 8:30 am GMT: U.K. BBA mortgage approvals (40.8K expected, 41.1K previous)