NZD Gains on RBNZ Hike, AUD Jobs Next

The market is suddenly grappling with new political and geopolitical risks. CAD was the best performer Wednesday while the euro lagged. NZD gained on the New Zealand's 25-bp hike to 3.25% in a well-anticipated move in early Asia-Pacific trading. The Australian jobs report is next.

Aside from the drama surrounding the ECB markets had settled into a groove over the last month. The major stories of the year were trouble in the Ukraine and emerging markets, US weather and economic malaise. Those risks have begun to fade and there were no genuine worries to step up in their place.

In a heartbeat, that's changed. Iraq is suddenly a major political story as rebels sweep to power in key oil producing areas of the country. In the US, the mainstream story was a loss of momentum from the Tea Party but the fringe surprised everyone by defeating Republican #2 Eric Cantor in a primary.

As the market grapples with the new stories the market could pare risk trades, especially after the recent run-up in stock markets.

Those risks helped send EUR/JPY to the lowest levels since early in the year on Wednesday. The close below the 200dma yesterday signaled weakness but the move has been swift and the lack of follow through on the break of the May low could cap the losses for now.

In early Asian trading, the New Zealand dollar surged more than a half-cent after the 25 bps rate hike to 3.25%. The hike was telegraphed but it was accompanied by a statement that rates need to move to a more neutral level. That outweighed the regular anti-NZD jawboning and a cut in growth forecasts.Coming into the statement the market had priced in 75 bps in additional hikes in the coming 12 months but the risks are now to the upside.

The focus now shifts to Australia with the May employment report on the schedule at 0130 GMT. The consensus is for a 10K rise but the full-time/part-time breakdown is just as important. In May the 14.2K job rise was entirely in full-time positions. The unemployment rate is expected to stay steady at 5.8%.