Written by Steven Dooley and Shier Lee Lim
FX volatility continues to decline
A massive day for US technology shares – the Nasdaq saw its best day since November as it climbed 3.0% thanks to very strong results from AI-firm Nvidia – didn’t have much impact on FX markets with volatility remaining low.
The kiwi was the one standout: the NZD/USD gained 0.3% ahead of next week’s Reserve Bank of New Zealand meeting. The NZD/USD hit new six-week highs.
Otherwise, FX markets were relatively unmoved, with the USD index down 0.1%.
The USD/JPY gained 0.1%, the GBP/USD climbed 0.1%, while the EUR/USD and AUD/USD were broadly flat.
The quiet session continues a recent theme of low volatility trading. For example, the AUD/USD’s monthly trading range has declined in each of the last four months.
GBP/USD near recent highs as data improves
We anticipate that UK consumer confidence will rise even further in February. It remained below its historical average in January, although other UK poll results have improved lately. Reduced mortgage interest rates could also improve mood.
The GBP has been well supported this year thanks to the delicate balance between sticky inflation and lackluster GDP. The second part of January saw UK data surprises retreat from their highs and return to neutral zone.
Singapore core inflation key for MAS
We expect core CPI inflation to rise to 3.5% y-o-y in January from 3.3% in December, due mainly to the impact of the GST hike, as well as increases in electricity tariffs and public transportation costs (effective from 23 December). We believe that these factors will exacerbate the impact of underlying wage pressures.
This suggests a sequential rise from 0.6% in December to 0.9% m-o-m sa. However, because automobile costs have dropped sharply, headline inflation should drop to 3.1% year over year from 3.7%, in line with certificate of entitlement (COE) charges. This suggests that headline inflation decreased sequentially from 0.4% in December to -0.1% m-o-m SA.
Monetary policy was kept unchanged by MAS in the January meeting. The MAS seems to be less negative about growth and anticipates a turnaround in the financial and manufacturing sectors.
Kiwi at highs ahead of next week’s RBNZ decision
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 19 – 23 February
All times AEDT Have a question? [email protected]
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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