By Mike Jones
NZD
A cheerful night in European markets underpinned a modest rally in the NZD overnight. However, the NZD/USD again struggled to sustain gains above 0.8230, and has settled back to around 0.8200.
With all eyes on the damage wrought by Hurricane Sandy (see Majors), currency markets traded narrow ranges overnight.
Notably, the hurricane has also introduced uncertainty around a) whether this week’s heavy-hitting US data will be released on time (particularly Friday’s employment figures), b) the possible impact on the US election.
Until these uncertainties are resolved, currency markets may well continue to consolidate in tight ranges.
Yesterday’s Bank of Japan policy announcement stuck to a familiar script. The BoJ topped up their asset purchase scheme, but only by a token ¥11t.
Investors’ disappointment dutifully delivered a stronger JPY and the top was knocked off NZD/JPY. As we noted yesterday, while the NZD/JPY may continue to tread softer in the short-term, we expect the uptrend to resume before long. We suspect dips toward the 200 day moving average at 64.30 will attract strong demand.
Overnight, a modest brightening in risk sentiment underpinned a bounce in the NZD. European equity markets were encouraged by a successful Italian bond auction and some less-terrible-than expected Spanish data.
The EuroStoxx 50 index rose 1.5%, and the EUR/USD climbed from below 1.2900 to around 1.2960. The NZD/USD was dragged back above 0.8200 in the EUR’s wake.
Keep an eye out for this morning’s (10:45am) September residential building consents figures. We’re expecting a decent 5% or so lift in consent numbers. This would be more than enough to maintain the positive trend and reaffirm faith in the Canterbury rebuild. For non-residential consents, we would welcome any extension of the glimmer of expansion that is starting to show through.
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Majors
In thin trade, the USD weakened against all of the major currencies overnight.
The big news in markets is the larger than expected impact of Hurricane Sandy. So far, multiple deaths have been reported, 8 million are without power, and damage estimates are at US$20b and rising.
US equity and bond markets remain closed, but are expected to open tonight. Note there is also a chance this week’s US data releases could be delayed.
The longer-lasting effects of the storm will not be known for some time. For now, the mood in financial markets is reasonably upbeat.
Sentiment in European markets brightened overnight thanks to an encouraging Italian bond auction and some ‘less bad’ Spanish GDP figures (-0.3% vs. -0.4% expected).
European equities rallied, and the ‘safe-haven’ USD suffered at the expense of the EUR, AUD, and GBP. But, daily volatility aside, most of the majors remain range-bound.
The EUR/USD is smack bang in the middle of the 1.2830-1.3150 range that has contained the currency since early September.
The Bank of Japan yesterday expanded its asset purchase scheme by ¥11t, taking the total to ¥60t. It also set up a “Stimulating Bank Lending Facility” that will offer unlimited (up to 3 year) loans at the call rate.
Nonetheless, investors (once again) saw through the measures as essentially token gestures to appease the Japanese government. As a result, the knee-jerk response was for a stronger JPY. The appeal of the JPY has dulled somewhat in overnight trade thanks to the ‘risk’ rally. But it remains around 0.5% stronger against the USD. We remain comfortable with our year-end 78.00 forecast for USD/JPY.
Looking ahead, currency markets look set to remain in consolidation mode as the closure of US markets constrains liquidity and damage assessments continue.
The immediate focus for European markets will be tonight’s finance ministers’ conference call on Greece. Markets will only react (by selling the EUR and risk assets) if there are any unexpected hitches in Greece receiving its next tranche of aid and a 2-year extension on its austerity programme.
Other News:
*RBA’s Lowe says “surprised AUD has not fallen, but not fundamentally overvalued”.
*UK CBI retail sales data (30 vs. 8 expected) provides a positive offset against the much weaker than expected CBI Industrial Trends survey.
*The Reserve Bank of India left its repo rate unchanged at 8.00%, disappointing many economists looking for a rate cut.
Event Calendar:
31 October: NZ building consents; AU building approvals; AU credit growth; US Chicago PMI; US Fed’s William’s speaks; 1 November: CH PMI; CH HSBC PMI; AU RBA commodity prices; UK PMI; US ADP employment; US jobless claims; US ISM manufacturing; 2 November: NZ ANZ commodity prices; EU PMIs; UK PMI construction; US non-farm payrolls; US factory orders.
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