Dollar Continues to Flounder, Kiwi Pops on RBNZ

A mystery wave of selling kicked the US dollar while it was already down on Wednesday. We check into some theories on what happened. Early in Asia, the RBNZ promised rate hikes and later, Australian jobs could make for some big moves. 

The pound was easily the best performer after upbeat jobs data while the dollar lagged. The dollar was soft but generally flat heading into US trading. Just before the options cut, EUR/USD jumped to 1.3300 from 1.3265.

There was talk about options activity but sources didn't show any major expiries. Another potential catalyst was the Verizon-Vodafone deal and associated flows. The pound has been exceedingly strong since the buyout and it could have been hedging payouts ahead of today's $49 billion corporate bond deal (the largest ever by far).

Oftentimes later in the day answers emerge but this one will remain a mystery. The bottom line is that the US dollar and yen have been exceedingly weak this month. Risk appetite has improved on Syria, data and emerging markets but the moves have been nearly non-stop since the begging of the month and the risk of a pullback is mounting.

Early in Asia-Pacific trading, the RBNZ boosted NZD/USD by a half-cent with a statement saying rate 'increases will likely be required next year' compared to 'removal of monetary stimulus will likely be needed in the future.' Wheeler went on to lament the strong kiwi but that tactic has been ineffective for months.

The next main event is the Australian employment report. AUD/USD has gained about 4 cents this month but positioning was extremely anti-Aussie so there is still plenty of juice to squeeze from Aussie shorts. We'll be watching to see how the Australian dollar reacts to the news. Expectations are for 10K new jobs and 5.8% unemployment when the numbers are released at 0130 GMT. If the numbers are strong and AUD doesn't rally, be wary of a further fall. If the numbers are weak but the dip is shallow, AUD probably has plenty of room to run.