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Soft AU retail sales report the latest in string of weaker-than-expected data; A$ extends its fall against NZ$ and US$

Posted in Currencies

By Kimberly Martin

NZD

The NZD/USD has traded a fairly steady path between 0.8550 and 0.8490 over the past 24-hours. It sits at 0.8520 this morning.

The NZD has been biding its time as it approaches the more important data release (Thursday’s HLFS) later in the week.

The NZD was fairly range-bound on most crosses, as well as relative to the USD. However, it made further gains relative to a soggy AUD.

The NZD/AUD has pushed higher to trade at 0.8310 this morning, having touched above 0.8320 overnight. The NZD/AUD now sits close to its highs since early 2009.

With the market pricing around a 50% chance of a RBA cut today, there is likely to be some volatility around the outcome.

If the RBA does not cut, we would look to use the consequent AUD bounce as an opportunity to buy NZD/AUD on a dip.

Over the medium-term we expect further appreciation in the cross. Our year-end forecast is 0.8500.

Domestically today, the QES wage report is released. While normally less market-moving than Thursday’s Household Labour Force Survey it will provide some nitty-gritty on developments in the NZ labour market.

For the NZD/USD today we see solid support towards the 0.8460 level. Resistance is eyed at 0.8550.

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Majors

It was relatively quiet trading in currency markets overnight. The AUD was the weakest performer over the past 24-hours.

In the backdrop of a UK Bank Holiday, global markets were fairly uneventful overnight. European equities failed to add to last Friday’s gains, but the S&P500 is currently up 0.30%.

There was a dearth of data releases overnight. The Eurozone retails sales data (-0.1%) passed with little response. However it was comments from ECB President Draghi that elicited the greater market response early this morning.

He said; “We will be looking at all the data that arrives from the euro-area in the coming weeks and if necessary, we are ready to act again”. He once again discussed the idea of reducing the bank deposit rate to less than zero.

The EUR/USD gapped lower after the comments, from 1.3110, to find support just below 1.3060. It sits around 1.3080 this morning.

The AUD/USD was on the back foot after the release of a soft AU retail sales report yesterday (-0.4%m/m vs. 0.1% expected).

This is the latest in a string of weaker-than-expected AU data releases, leading into today’s RBA meeting. The AUD/USD extended its fall overnight, to trade at 1.0240 this morning.

Given the fairly even odds the market is placing on a rate cut today, it should be one of the RBA’s more interesting meetings.

Non-delivery of a cut today may see a near-term bounce in the AUD. If a cut is delivered the AUD/USD may attempt an assault on the key support level of the past year, at 1.0160.

The USD/JPY sneaked a little higher overnight. Sitting at 99.40 this morning, it again has the hitherto unassailable 100.00 level in sight.

It is a fairly bare global calendar tonight, with German factory orders and US consumer credit data unlikely to be major market movers.

Event Calendar:

7 May: NZ LCI/QES wage reports; AU trade balance; AU house price index; AU RBA decision; EU German factory orders;

8 May: NZ RBNZ FSR; CH trade balance; EU German IP; US Fed’s Stein speaks;

9 May: NZ HLFS; CH CPI; AU employment; UK BoE meeting, and industrial & manufacturing production;

10 May: AU RBA SoMP; G7 finance ministers/central bankers meet; US Fed’s Evans, Bernanke, and George speak.

All its research is available here.

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