By Mike Jones

NZD

The NZD/USD showed little direction for most of the day yesterday, until the evening release of PMI data in Europe. Surprising to the upside, these buoyed global sentiment, causing a surge in “risk-sensitive” currencies such as the NZD. The NZD/USD climbed to 0.8340 currently.

A combination of positive PMI releases in the Eurozone, the UK and the US, along with rumour of progress in the Greek PSI negotiations saw risk appetite improve overnight. The NZD/USD was a key beneficiary, rising from overnight lows close to 0.8210, to trade near 0.8340 at present. This has convincingly broken previous resistance levels, taking the NZD/USD to its highest level since early September, last year.

The NZD/EUR drifted up also, from around 0.6300 to just below 0.6330 currently. Relative to the GBP the NZD also made some headway. It rose from just above 0.5220 to trade above 0.5260. Its ascent was curtailed by strength in the GBP itself that benefited from a positive surprise to the UK PMI release. This showed UK manufacturing solidly in expansion mode.

Trading in the NZD/AUD was fairly choppy, though both currencies benefited from improved risk appetite overnight. The cross traded below 0.7760 last evening, before returning to trade around 0.7780 this morning.

Today’s ANZ commodity export prices data will be watched, as sustained high global commodity prices are an important component underpinning the NZD. Elsewhere, global sentiment, perhaps impacted by an imminent Greek PSI announcement, will be the key driver of the NZD.

Majors

The USD weakened broadly overnight. Positive surprises to global manufacturing data boosted risk sentiment, and reduced demand for the “safe haven” USD. The AUD and NZD were amongst the strongest performers.

Markets started the evening in a positive mood after the release of Eurozone PMI data. These showed improvements in the individual components, and the headline EU number creeping up to 48.8 from 48.7 (48.7 expected). Critically, the German PMI also managed to move up to 51, remaining solidly in expansion. Rumours also swirled about an imminent conclusion to the Greek PSI negotiations. The Euro Stoxx 50 opened up, maintaining positive momentum to close up 2.24%. Our risk appetite index moved up from 54% to 57%.

The USD index fell from an evening high close to 79.60, to 78.80 currently. Its fall was exacerbated by the release of the US ISM manufacturing index early this morning. It further reduced demand for “safe haven” currencies. The index also improved from 53.9 to 54.1, though being slightly below expectation of 54.5. Importantly, in the detail, the forward-looking new orders were at 57.6.

The EUR was a beneficiary of declining demand for the USD, and tentative optimism about cyclical growth in Europe. It stepped up from lows last evening close to 1.3030, to 1.3190 currently.

The GBP was boosted by general sentiment, and by its own PMI release. It showed manufacturing activity in the UK stepping firmly into expansion at 52.1 (50.0 expected), a glimmer of hope for a struggling economy. The GBP/USD rose from lows around 1.5700 to 1.5850 currently. This is its highest level since mid November, having broken previous resistance levels in recent days. Now, technical resistance is not seen until above 1.6000.

The AUD had shown little response yesterday afternoon to the slightly better than expected China PMI (50.5 vs. 49.6 expected). However, it took flight after the European PMI releases. The AUD/USD moved off evening lows close to 1.0570 to trade around 1.0730 currently. This is nudging toward resistance at 1.0750, the level it failed to break in early September and late October last year. Continued positive sentiment today will see this level re-tested.

Today, trade balance and building approvals data will be released in Australia. Tonight, we get US productivity and ULC data, along with weekly jobless claims.

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