By Kymberly Martin
NZD
Demand for the NZD was underpinned by a solid Chinese PMI outcome and a stabilisation in risk appetite overnight. The NZD/USD has crept up to 0.8170.
Yesterday’s HSBC China manufacturing PMI release helped support hopes that Chinese growth may be finding a bottom. This boosted the AUD and underpinned the NZD.
The NZD/USD maintained upward momentum overnight as global sentiment stabilised, and the US Fed meeting provided little surprise.
Near-term support for the NZD/USD is seen at 0.8100. Resistance is eyed at 0.8190.
On the crosses, the NZD made gains on a soft EUR, but now sits a little lower relative to the AUD. Following a slightly higher than expected AU CPI reading yesterday the NZD/AUD gapped lower. It has remained around the 0.7890 level since.
All eyes are now on today’s RBNZ meeting under the new governorship of Graeme Wheeler. We believe it will be a relatively low-key, even-handed affair, and should not elicit a strong currency response.
If the statement’s weighing of risks leans towards greater potential for rate cuts, the NZD could show a knee-jerk downshift. However, it is worth noting the market already pries 25bps of RBNZ cuts in the year ahead.
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Majors
Market sentiment stabilised overnight. The NZD and AUD outperformed following a positive surprise on the Chinese manufacturing PMI yesterday.
Over the past 24-hours there have been plenty of developments to spur both optimists and pessimists. However, overnight, equity markets appeared to want to see the glass half full, with the Euro Stoxx 50 closing up 0.50%.
Our risk appetite index (scale 1-100% has stabilised around 68%). The USD index was fairly agnostic, bobbing around the 80.00 level.
Yesterday afternoon, the October Chinese HSBC PMI moved up from 47.9 to 49.1. Though still showing manufacturing is contracting, it helped build hopes Chinese activity may be bottoming. This spurred the AUD and NZD that managed to maintain upward momentum overnight. The AUD/USD has moved up to sit just below 1.0360.
On a less promising note, European data overnight was fairly depressing. Not only did the European composite PMI slip further into contraction (45.8 vs. 46.5 expected), but the German sub-groups also contracted.
The German manufacturing PMI fell to 45.7 (48.0 expected), while the services PMI also continued to contract (49.3 vs. 50.0 expected).
The German IFO business climate indicator fell to 100, the lowest level since early 2010. The EUR/USD was knocked a little lower to 1.2960.
Later in the night, US homes sales surprised to the upside (5.7%m/m vs. 3.2% expected), helping to improve the general mood in markets. In addition, headlines from ECB Draghi’s speech to German lawmakers were comforting. Headlines claimed Draghi made convincing monetary policy arguments for the OMT according to German conservatives. He also helped convince officials the OMT will not boost inflation.
The GBP managed to part ways with the EUR last night. The GBP/USD showed a solid rise from 1.5960 to 1.6040 this morning. Tonight, UK 3Q GDP data will be released. The market expects a bounce to 0.6%q/q following three quarters of negative growth.
In the US, pending homes sales, durable goods orders and weekly jobless claims data will be released. None are likely to be critical data points for markets as they remain more focused on political polls in the lead up to US elections.
Event Calendar:
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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