Market Drivers April 2, 2015

Euro pops through 1.0800 on reported progress with Greece
UK PMI Construction bit weaker than expected
Nikkei -1.46% Europe +.12%
Oil $49/bbl
Gold $1203/oz.

Europe and Asia:
AUD Trade Balance -1.2B vs. -1.28B
GBP PMI Construction 57.8 vs. 59.7

North America:
USD Weekly jobless 8:30

CAD Trade 08:30

The EUR/USD popped through the 1.0800 level in late Asian session trade today on reports that EU negotiators were making progress with Greece on terms of a new bailout deal. Meanwhile elsewhere most of the major FX pairs were left to tread water as markets remained at standstill ahead of the US NFP report due Friday.

In Australia the Trade Balance came in essentially as expected at -1.26B versus -1.28B eyed, but Aussie remained weak throughout the night testing the .7550 support zone. The markets continue to worry about the prospect of yet another 25bp RBA rate cut that would take the country’s benchmark yield to 2.00%.

Analysts are now starting to talk about the possibility of parity in the the AUD/NZD cross which continues to inch lower hitting 1.0125 in morning London dealing. A rate cut by the RBA would no doubt push the pair to test of parity as the interest rate differential between New Zealand and Australia would continue to widen. Such a move would cause problems on both sides of the Tasman sea but most particularly in New Zealand which is already facing lower demand due to a fall in milk prices and may find that the appreciating kiwi could hamper growth for the rest of the country’s exports.

We would not be surprised if the RBNZ resorted to intervention if RBA cut rates next week in order to keep the AUD/NZD exchange rate from a freefall. Once speculative markets like FX begin to gather momentum price moves can be very volatile and could greatly exceed the fundamental drivers. New Zealand’s Prime Minister John Key who was an FX trader in former life, no doubt appreciates the current dynamics and New Zealand policy makers are likely making contingency plans for such a scenario.

In North America today it will be another quiet session on the calendar front with only the US weekly jobless claims on the docket. Yesterday’s weak ADP numbers knocked the wind out of the sails for the US dollar rally and if tomorrow’s NFP report misses the forecast, printing below the key 200K mark it could drive the dollar significantly lower as chances of any Fed normalization in June will likely evaporate.

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