By Mike Jones
NZD
After suffering an obvious case of Mondayitis, the NZD rebounded overnight. The NZD/USD climbed to almost 0.8190, having again bounced off the important 0.8145 support level.
Not only did global risk sentiment turn more positive overnight (see Majors), but a mix of Asian real money and speculative demand also helped underpin the NZD.
Technically speaking, the failure of the NZD/USD to break convincingly below 0.8145 means we’re back to trading the familiar 0.8145-0.8360 range.
However, there is a lot of event-risk for the currency to negotiate today. First up is NZ CPI inflation data at 10:45am (NZT). The modest 0.4% quarterly increase we’re picking is softer than the market’s 0.5/0.6%, and would further clip annual CPI inflation to 0.9%, from 1.0% in Q3.
An outcome around our expectations would only reinforce the market’s inclination to price in RBNZ rate cuts (a full 25bps cut is now fully priced into the curve), dragging the NZD/USD a little lower.
Still, the backward-looking nature of the data may limit market reaction to some extent. Most (including us) expect NZ inflation to track higher over the coming year.
Later in the day (1:30pm NZT), the RBA releases the Board Minutes from the October meeting. These will be examined for indications a follow-up (November) easing is likely.
Most Australian analysts have moved to call a 25bps Melbourne Cup Day rate cut, an outcome interest rate markets price with an 85% probability.
More RBA easing speculation in the Australian media and Governor Stevens’ “we have ammunition” comments have only increased markets’ conviction on this front.
Given all this, the most surprising outcome for investors would be less dovish than expected language from the RBA. The knee-jerk AUD short covering under this scenario could see NZD/AUD re-test the important 0.7950 level.
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Majors
Yesterday’s decidedly downbeat tone faded overnight, such that the ‘safe-haven’ USD has come under mild selling pressure. Nonetheless, it’s been a quiet start to the week in currency markets, with most of the majors stuck inside familiar ranges.
US markets were encouraged by a solid set of retail sales figures and Citigroup’s forecast-topping Q3 earnings. After a soft start to the night, the S&P500 climbed 0.5%, with the Dow Jones index up 0.6%.
The VIX index (a proxy for risk aversion) eased from 16.2% to around 15.4%.
In Europe, investors remain optimistic that Greece will be able to hash out an austerity package in time for Thursday’s Summit. Were this to be the case, it would pave the way for Greece to receive a €31b bailout tranche.
Indicative of the improved Greek sentiment, 10-year Greek yields fell to ‘just’ 17.4% overnight, a 14-month low.
The above developments have helped bolster global growth sentiment somewhat. But investors are still cautious, and are likely waiting to see if 1) this week’s Chinese data holds up ok and 2) Thursday’s EU Summit produces a positive outcome, before embracing ‘risk’ more fully.
Reflective of this caution, most of the major currencies pushed up towards the top of recent ranges overnight, without much in the way of follow through. The EUR/USD climbed ½ cent to 1.2950, with the GBP/USD gaining slightly less to 1.6070. USD/JPY ground up from 78.40 to test resistance at 78.90.
Looking ahead, with most of this week’s important data/events due later in the week, currencies look set to remain range-bound in the short-term. Support for the EUR/USD looks solid at 1.2825, with near-term bounces towards 1.3050 likely to run into resistance.
Other news: US advance retail sales rise 1.1% in September, the third consecutive month of expansion and above forecasts of 0.8%. This helped offset the pessimism generated by a softer reading of the New York Empire manufacturing index (-6.16 vs. -4.00 expected).
Event Calendar:
16 October: NZ CPI; AU RBA Board minutes; UK CPI; EU German ZEW; US CPI; 17 October: UK BoE minutes; US housing starts; 18 October: NZ job ads; AU NAB business conditions; CH industrial production, GDP, retail sales & investment; US Philadelphia Fed index; EU European Summit begins in Brussels; 19 October: NZ net migration; US home sales.
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1 Comments
A Tobin Tax would certainly cool the speculation that is pushing up our dollar and ruining our exporters. Unlikely from currency trader John Key however. It would also make a good contribution to our tax take to help offset some of the damage being done to our currency and ecconomy. Mr's English and Key, there are things that can be done and there are a body of very eminent ecconomists who aggree.
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