by Mike Jones
NZD
The NZD has been the weakest performing currency over the past 24 hours. Sliding local interest rates and generalised risk aversion dragged the NZD/USD to a fresh 5-month low below 0.7650 overnight.
Fears over the health of the Eurozone continue to hold sway in markets, crushing risk appetite and encouraging demand for ‘safe-haven’ assets. This souring in the global backdrop, coupled with weakening NZ fundamentals (falling interest rates and commodity prices), is resulting in ongoing NZD underperformance. Indeed, the NZD lost ground on all of the major crosses last night. At around 0.7700, NZD/AUD is now over 3% below month-ago levels.
Still, after a negative lead from Asia, sentiment gradually recovered through the overnight session. Either that, or investors simply paused for breath. Snippets of encouraging US economic data and a few (rare) comforting headlines out of Europe helped prop up risk appetite, and the NZD/USD spent the rest of the night consolidating in a 0.7620-0.7685 range.
Looking ahead, the near-term NZD/USD downside still looks compelling to us. Momentum is strongly negative and there is little firm technical support ahead of the December 0.7500 lows. However, with speculative players short NZD/USD, and the daily RSI suggesting the currency is strongly ‘oversold’, we wouldn’t be surprised to see a short-term squeeze higher along the way.
Today we get NZ producer prices. The data hardly ever moves the NZD but it might get some attention on an otherwise quiet news day. A soft result is expected reflecting the high NZ dollar and falling commodity prices. This afternoon’s ANZ-RM consumer confidence index is expected to hold steady around last month’s 114.0.
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Majors
Currencies mostly consolidated in sideways ranges overnight. Still, the USD held firm against most of the majors as Euro-area stresses ensured ‘flight to safety’ flows continued.
Markets absorbed a swathe of news and events overnight. Broadly speaking, the positive news offset the negative to leave markets a little directionless on the day. Investors are also likely suffering from a bit of European headline fatigue.
The EUR made a poor start to the session after the Greek central bank confirmed €700m in deposits has been withdrawn from Greek banks this week. But some comfort was taken from the installation of a care-taker prime minister and various officials reaffirming their support for Greece.
Encouraging looking US economic data also helped to stabilise market sentiment. April capacity utilisation and housing data, on balance, came out a touch stronger than analysts’ expectations. Having skidded to a fresh 4-month low around 1.2670, the EUR/USD quickly bounced back above 1.2700. The more risk sensitive AUD and CAD tracked a similarly volatile but ultimately sideways path.
The UK took a rare turn in the spotlight following the release of the Bank of England’s Inflation Report. Growth forecasts were lowered and the downside risks to the UK economy played up. At the same time, short-term CPI inflation forecasts were revised up. All in all, it proved to be an unfriendly set of numbers for the GBP/USD, which slipped nearly a cent in the wake of the report, to 1.5900.
The Fed minutes were more or less shrugged off. As expected, the FOMC broadly left the door open for further policy easing should the US recovery lose momentum. “Several” members thought QEIII may be necessary compared to “only a couple” in the previous minutes. Still, the ‘Bernanke put’ is now well known in markets, so reaction was subdued.
Looking ahead, there isn’t a lot on the data calendar to get excited about in the next 24 hours. As such, we may see a bit more consolidation and profit taking in currencies as investors pause to catch their breath. Long-term support on EUR/USD is seen at 1.2625, with initial resistance expected on bounces towards 1.2800. Keep an eye on tonight’s Philadelphia Fed manufacturing index and today’s Japanese Q1 GDP figures. In addition, Spanish and French bond auctions may provide another gauge of European debt stresses.
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