By Kymberly Martin
NZD
The NZD/USD continued its downward slide on Friday, ending the week just below 0.7900. It has opened the week lower to sit around 0.7840 currently.
Despite mixed messages in Friday night’s US employment report, the USD bounced at the expense of most of its peers. After some initial volatility the NZD/USD slipped lower, to end the week around 0.7900.
Over the weekend, data releases showed a softer-than-expected outcome for Chinese trade. This has contributed to the NZD and the AUD starting the week on the back foot. The NZD/USD currently sits around 0.7840.
The NZD was also lower on the major crosses on Friday. The NZD/EUR finished the week around 0.5960, before opening lower to sit around 0.5940 currently.
Technical support is now seen at the May 2012 lows of 0.5900, after which the NZD/EUR rebounded to 0.6700. Meanwhile the NZD/GBP is eyeing support at the 0.5000 (a level last visited in September last year), after opening the week around 0.5050.
For today, there is little in the way of domestic data to drive the currency. NZ manufacturing sales data should pass without drama.
Today’s QV house price data is likely to confirm higher house price inflation, a perennial concern for the RBNZ.
However, the domestic highlight for the week will be Thursday’s RBNZ meeting. Here, we expect the Bank to confirm its mild tightening bias, but show no great urgency to raise the OCR.
For today, key support for the NZD/USD is eyed at 0.7800. Resistance will be encountered approaching 0.7900.
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Majors
The USD bounced on Friday, after the release of the much anticipated payrolls data. The AUD and NZD were the weakest performers.
After much anticipation, Friday’s US employment report provided something for everyone. Non-farm payrolls (175K) came in above the official consensus (165K).
However, this was offset by downward revisions to the previous month. In addition, the unemployment rate was seen ticking up to 7.6% (7.5% expected). However, on further dissection this was largely seen to be the result of an increase in the labour force participation rate.
Overall, the report probably did not too much dissuade the market of the view that the US Fed is steadily progressing toward ‘tapering’ QE later this year, as the economy gradually heals. The Euro Stoxx 50 closed up 1.8% and the S&P500 up 1.3%.
After some initial marked volatility, the USD index appeared to respond with relief that the report was not worse, as it had feared. The USD index bounced to end the week around 81.70.
In response, the EUR/USD and GBP/USD both closed the night a little lower around 1.3220 and 1.5550 respectively. The JPY also reversed recent strengthening. The USD/JPY bounced off lows around 95.00 to finish the week at 97.50.
The AUD/USD finished the week lower at 0.9500. It has opened this morning around 0.9430. China data releases over the weekend did little to improve the mood toward the AUD. Much of a slew of May Chinese data was in line with expectation.
However, the notable exception was import and export data that came in well below expectation (exports 1.0%y/y vs. 7.4% expected; imports -0.3%y/y vs. 6.6% expected).
While this was fairly ominous for the AUD, one saving grace as far as Australia is concerned is that import values held steady at $8.5bn (higher iron ore volumes but lower prices seemingly the main story here). Australia’s bilateral surplus was seen shrinking only slightly to $5.4b from $5.6b. We would caution against excessive AUD bearishness at this point.
The most recent IMM data show speculative net short positioning extended to an historical extreme as of last Tuesday, at -58.6k contracts. (The previous record low was -51.2k during the week ended June 5 2012, and came at the end of a period when AUD/USD had fallen from just shy of 1.05 to below 0.96 in the space of 5 weeks.
From there it rallied back sharply in the ensuing two months to back above 1.05.) Crucial technical support for the AUD/USD is now seen just below 0.9400.
Today, AU celebrates Queen’s Birthday and global data are fairly low key. Japan will issue its final reading of Q1 GDP and French and Italian industrial production data will be released.
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