The New Zealand Dollar gained in overnight trade, with prices trading higher alongside the island nation’s bond yields to hint at a firming RBNZ policy outlook as the driver behind momentum. While the overall bias remains dovish, this implies investors may have speculated that easing will resume later than previously projected.

The shift could have been triggered after Fonterra – the world’s largest dairy exporter – upgraded its 2016-17 milk price forecast to NZ$4.75/kg from NZ$4.25/kg. This bodes well for New Zealand, where dairy is the leading export commodity and cross-border sales are an important driver of economic growth. With that in mind, higher milk prices may boost overall performance, potentially reducing scope for interest rate cuts.

The Australian Dollar also edged higher. US Treasury bond yields pulled back in Asia after return on the 2-year note hit a two-month high yesterday. This may have offered relative support to yield-sensitive high beta currencies as a whole. Thematically speaking, seesawing rate spreads probably reflect pre-positioning ahead of a much-anticipated speech from Fed Chair Janet Yellen at the Jackson Hole Symposium on Friday.

Augusts’ German IFO survey of business confidence headlines the economic calendar in European trading hours. Traders will look to the data to gauge the extent to which uncertainty triggered by the outcome of the “Brexit” referendum is cooling confidence and weighing on activity. The Euro may be more responsive to a soft versus upbeat result in that the latter scenario would do little to alter the ECB’s firmly dovish policy bias.

Beyond that, July’s US Durable Goods Orders report enters the spotlight. Economists project improvement but the markets may largely overlook the figures, waiting for the aforementioned Yellen commentary to cross the wires before committing to a firm directional bias.

Asia Session

European Session

Critical Levels