By Kymberly Martin

NZD

The NZD/USD slipped a little lower over the past 24-hours, to trade around 0.8380 at present.

Yesterday’s December BNZ PMI release nudged up to 50.1, indicating the slimmest of expansions last month. The NZD showed little reaction to the unsurprising outcome.

The NZD/USD declined overnight along with the AUD/USD. Still, essentially the currency continued its pattern of consolidation around the 0.8400 level seen for the past fortnight.

The NZD/USD sits at 0.8380 with support eyed at 0.8350. We continue to see key resistance for the NZD/USD at the mid-December/early-January highs above 0.8460.

The NZD/AUD is attempting to break higher, currently sitting around 0.8010. It found resistance overnight, just above 0.8020, which marked the highs on the cross in mid-December.

A break above this level will open the way for a rise to early October highs around 0.8080.

Ultimately we see the NZD/AUD moving up to 0.8200 by mid-year as the RBA continues to cut rates to offset domestic weakness, while the RBNZ remains firmly on hold.

In the backdrop of the resumption of broad JPY weakness the NZD/JPY has popped back up from 74.60 to 75.40. Resistance is now seen at last week’s highs above 75.80.

In the day ahead there are no key data releases on either side of the Tasman (although NZ credit card billings will be released). Expect the NZD’s fortunes to be driven more by broad risk appetite.

In this regard, tonight’s German IFO business survey is the data with the greatest potential to make an impact. Consensus expects a slight improvement.

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Majors

JPY weakness was the dominant theme in currency markets. The AUD also had a notable weakening.

General market sentiment was fairly solid overnight, as equity markets posted further gains. The US S&P500 reporting season continues to provide positive earnings surprise on aggregate.

Global data also helped underpin sentiment. The HSBC Chinese PMI held up at 51.9, helping corroborate the recent easing in China growth fears. The January European composite PMI remained firmly in contraction (48.2) but inched up from 47.2 previously.

The EUR/USD crept up from 1.3320 to trade around 1.3380 currently. However, the USD index managed to hold up around 80.00 as the USD benefitted from JPY selling.

JPY weakness resumed yesterday, likely assisted by Japanese government comments. Government minister Nishimura said USD/JPY at 100 would be no problem, though it would add to import costs.

He also said the Bank of Japan needs to ease more to reach its 2% inflation target. The USD/JPY strengthened from 88.50 to 90.00.

The AUD continued to weaken over the past 24-hours, slipping from around 1.0540 to 1.0460. A solid Chinese PMI number was not sufficient to arrest the currency’s drift lower.

Concerns for the domestic AU economy have likely curtailed the previous ascent of the AUD. However, it remains well within ranges it has traded for the past few months, marked by key support just below 1.0400.

The next big test for the AUD will be the 5 February RBA meeting. The market currently prices a 40% chance of a cut. Delivery of a cut would likely therefore, at least temporarily, undermine the currency.

The key for market sentiment at the end of the week will be tonight’s German IFO survey. Consensus expects a slight improvement in current business conditions and expectations.

All its research is available here.