By Kymberly Martin
NZD
As global risk appetite eased overnight the NZD/USD came under selling pressure, falling to 0.8110.
Several factors accumulated overnight, to take the top off previously very frothy risk appetite.
The NZD looks vulnerable to further downside, if this proves to be a more sustained pull-back in risk appetite, leading up to the US elections and beyond.
Overnight, the NZD/USD found support at the 0.8100 level. However, as highlighted yesterday the currency now looks susceptible to a deeper correction back towards 0.8000.
Key today will be the HSBC China PMI release. Following last week’s encouraging Chinese data, hopes are high that the PMI will show an improvement from last month’s disappointing 47.9. A lower or unchanged outturn would take some toll on the NZD (and the AUD).
Tonight, risk appetite will have plenty of hurdles to navigate with the release of the Eurozone PMI and German IFO data, along with US housing data.
In addition, the market will be looking for headlines from ECB’s Draghi and gauging the tone in the US election campaign following the final televised debate (see Majors). All up, there is plenty to provide volatility for the NZD in the coming 24-hours.
Then, it’s on to the RBNZ meeting tomorrow. We believe it to be a relatively low-key, even-handed affair, under new Governor Wheeler.
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Majors
The USD and JPY were stronger overnight as risk appetite waned. The CAD was also supported by a more hawkish central bank than the market expected.
Overnight, risk sentiment declined. Our risk appetite index (scale 1-100%) has fallen from above 79% a week ago to 69% now. The Euro Stoxx 50 closed down 2.1% and the S&P500 is currently down 1.0%.
A definitive catalyst appears lacking. However, there were a number of contributing factors: uncertainty regarding the outcome of the US election as Romney makes further gains on Obama; a growing acceptance that the US Q3 earnings season is less than sensational.
With 145/500 companies now reported, earning growth sits at less than 1%; comments from Spain’s central bank that GDP shrank for the fifth consecutive quarter. The budget ministry also said the deficit would reach 7.3% of GDP this year due to bank bailout costs, somewhat above plan.
In this murky backdrop the USD benefited from ‘safe haven’ demand as did the JPY. The USD index moved up from 79.60 to around 80.00 this morning. This is a critical resistance level that has held since early September.
The EUR/USD slipped from above 1.3060 to below 1.2980, also dragging the GBP lower. The test for the EUR tonight will come with the release of Eurozone PMI data and the German IFO survey. ECB’s Draghi is also scheduled to speak to German law-makers in Berlin, on the crisis, which could provide interesting headlines.
The AUD came under pressure along with the NZD as risk appetite faded. However, the ‘risk sensitive’ CAD gapped higher after hawkish comments accompanied the BoC’s decision to keep rates at 1.0%. Governor Carney referenced imbalances in the household sector saying “some modest withdrawal of monetary policy stimulus will likely be required”. It serves to remind markets that down is not the only direction for target rates to move.
There is plenty of event risk for the AUD today (and by spill-over for the NZD). AU 3Q CPI data is released at 13.30 NZT today. The October, HSBC China Flash PMI will also be released. The market will be looking for signs that China growth is bottoming. The previous reading of 47.9 showed China manufacturing remained in contraction.
Tonight’s US FOMC meeting is unlikely to provide too many ripples, as attention in the US remains firmly on politics leading up to the Nov 6 election.
Event Calendar:
24 October: AU CPI; CH HSBC Flash manufacturing PMI; EU German IFO; EU Manufacturing PMIs; EU ECB’s Draghi briefs German lawmakers; US new home sales; US FOMC decision; 25 October: NZ RBNZ OCR Review; UK GDP; US Chicago Fed index; US durable goods orders; US pending home sales; US jobless claims; 26 October: NZ trade balance; US Michigan consumer confidence; US GDP
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