By Dan Bell
The NZD/USD could not maintain its upwards momentum and reversed course to dip to a low of 0.8681 overnight. We are just above that level as I type.
The EUR/USD drifted lower on weak European data and a lackluster Italian bond auction heightened worries about the euro zone sovereign crisis. Italian yields soared, increasing concerns a second Greek bailout agreed last week may not prevent contagion to larger euro zone economies. This also weighed on the NZD.
Global equity markets mostly suffered losses with the Dow Jones Index and the S&P500 Index down 0.5% and 0.3% respectively. Like equities, Commodity prices were generally under pressure, with the CRB Index 0.6% lower. Gold is down to USD$1615 per oz while copper bucked the trend to move higher by 0.5%.
The US debt ceiling impasse continue to weigh heavily on the USD. US investors believe a last-minute deal will be done, however non-US investors are less than convinced. Foreign investors, particularly Asian Central Banks. owe nearly half of outstanding US Treasury debt. These investors are reportedly to be slowly diversifying away from US assets and steady buyers of alternatives such as other Asia currencies as well as Canadian, Australian, and New Zealand Dollars. This diversification will continue to boost the value of the NZD, as will the still on-going Christchurch re-insurance flows.
An overnight Reuters poll stated that 50% of analysts expect the US to loss its AAA debt rating within the next 3 months. At this stage it is uncertain what the net effect of this will be on the markets as everybody already know the US is heavily indebted and struggling to correct the situation. However, they are not alone in this regard with many euro-zone nations in similar (and some even worse) situations.
NZ Building Consents will be released at 10.45am today, while US GDP, and Consumer Sentiment and Inflation Expectations hit the tapes tonight. However, the markets will be primarily focused on the continuing mascinations of the US debt ceiling crisis, with the (US time) 2nd August deadline fast approaching. Expect the markets to maintain the current high levels of volatility.
The NZD opens around 0.8695 USD, 0.7910 AUD, 0.6070 EUR, 676 0 JPY and 0.5315 GBP.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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