by Kymberly Martin
NZD
The NZD/USD has crept up to trade just above 0.8100, in relatively quiet trading overnight.
Yesterday, the NZ NBBO survey painted a picture of an economy that continues to show remarkable resilience in the face of world woes.
The ‘own-activity’ indicator, as a reflection of what lies ahead for New Zealand, jumped from 20.8 in June to 24.0 in July. This is about average.
Accordingly, we would deem it to be consistent with GDP growth rising to around 2.75%, in the not-too-distant future. This is our central view. This provided some underpinning to the NZD/USD. The currency then drifted a little higher overnight, in markets that seem slightly directionless ahead of central bank announcements tomorrow.
Momentum factors remain in favour of the NZD. However, it will likely take an announcement from the US FOMC that clearly points to further quantitative easing in the path ahead to propel the NZD/USD toward its old trading range around the 0.8200 level. The FOMC meeting will take place early tomorrow morning (NZT).
Early tomorrow morning, the latest Fonterra milk auction will also take place.
The NZD/EUR eased slightly lower overnight to trade around 0.6580 currently. Our analysis suggests the ‘peak’ in NZD/EUR could be as high as 0.6800/0.6900. Therefore there is room for further mild appreciation but not a lot.
In the near-term, direction will be driven by headlines in the lead up to tomorrow’s ECB meeting. Following President Draghi’s comments last week, market expectations are now high, and thus the potential for disappointment is also high.
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Majors
It was a relatively quiet night for currencies as markets await key central bank decisions tomorrow.
The USD index has weakened a little further to 82.60.Some of the recent gloss was taken off markets. Comments from the German finance ministry threw doubt on the potential for a banking license for the ESM. In addition, data releases were underwhelming with the Eurozone unemployment rate confirmed at 11.2% in June.
The market appears paused in anxious anticipation of key central bank meetings tomorrow (NZT).
Our risk appetite indicator (scale 1-100%) remains around 59%, though equity markets posted modest negative returns.
The EUR/USD has climbed tentatively higher from 1.2260 to trade around 1.2310. We see key resistance for the EUR/USD at 1.2330 ahead of the central bank announcements.
The GBP/USD languished overnight as rating agency Moody’s reiterated its negative outlook for the sovereign. It sees challenges ahead including a weak economy and reduced fiscal flexibility. The GBP/USD fell to almost 1.5620 overnight before clawing its way back to 1.5680.
The AUD made modest gains along with the NZD yesterday. In fairly range-bound trading the AUD touched resistance close to 1.0540 several times last night, before returning to trade at 1.0510 currently.
Markets will have Chinese and European Manufacturing PMI data to digest tonight along with the US ISM.
However, the market will be in anticipation mode ahead of the US FOMC meeting early tomorrow morning (NZT). Whilst it is likely too soon for the Fed to announce QEIII, expectations will be high for the Fed to hint at a date for future action, or to offering other policy ‘tinkering’.
Event Calendar: 1 August: CH PMI; CH HSBC manufacturing PMI; EU & UK PMI manufacturing; US ADP employment; US ISM manufacturing; NZ dairy price auction; 2 August: US FOMC decision; NZ ANZ commodity prices; AU trade balance; AU retail sales; UK BoE meeting; EU ECB meeting; US factory orders; Monti & Rajoy meeting; 3 August: CH non-manufacturing PMI; EU retail sales; EU & UK PMI services; US non-farm payrolls.
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