By Kymberly Martin
NZD
The NZD fought to find its feet on Friday. It trades around 0.7750 currently.
It was more of the same at the end of the week. NZ data (ANZ consumer confidence) continued to tell the story of a domestic economy now showing broad-based strength.
However, the currency remained fairly disinterested as markets remained focused on the outlook for US monetary policy.
While US yields continued to surge higher and the USD broadly strengthened, the NZD, along with the AUD, grappled to find its feet.
The NZD/USD found support at the 0.7700 level early on Saturday morning, before ending the week at 0.7750.
However, the NZD was generally more resilient on the crosses. The NZD strengthened against a soggy EUR to end the week at 0.5910. Early-June support levels on the NZD/EUR at 0.5840 continue to hold.
Meanwhile, NZD/JPY that has spent the past few weeks consolidating above the 75.00 level, ended the week just below 76.00.
Over the longer-term we continue to see further NZD/JPY appreciation as the Bank of Japan pursues accommodative policy.
The NZD/AUD dipped a little further to end the week just above the 0.8400 level. Domestic fundamental (growth, interest rates and commodities) continue to underpin the NZD relative to the AUD.
We continue to see dips in the cross as opportunities to position for further strength over the medium-term.
Today, there are no tier one data on either side of the Tasman. The NZ data highlight this week will be Thursday’s ANZ business confidence survey. Today’s data (net migration, credit card spending) are of relative secondary importance to markets.
For today, key support for the NZD/USD sits at 0.7700 while resistance will likely be encountered approaching 0.7800.
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Majors
USD strength continued on Friday, especially against its European peers. The AUD stabilised along with the NZD.
The market continued to be focused on absorbing the implications of less accommodative US Federal Reserve policy. Markets attempted to stabilise.
Our risk appetite (scale 0-100%) crept up from 48 to 51%. However, European equity markets continued to fall, as US and German bonds continued their sell-off.
US equity markets gained some respite in the NY afternoon from an article by Fed commentator Hilsenrath in the WSJ. It highlighted ‘dovish’ signals that had been overlooked in Chairman Bernanke’s commentary.
The S&P500 closed up 0.30%. However, it had no lasting impact on US 10-year yields that closed near to their highs, at 2.53%, their highest level since August 2011.
Consistent with this sentiment the USD index moved up from around 81.80, to end the week close to its highs at 82.40. However, this is still some way below the mid-May highs above 84.00.
The EUR and GBP continued to give back some of their recent gains. Sentiment toward the EUR was likely not helped by developments in Greece.
The Greek Prime Minister lost one it his two coalition partners over a policy disagreement. The government maintains a majority, but its ongoing stability has been placed under the spotlight.
Headlines of strain in the Eurozone have been notable by their absence of late, as most attention has been focused on the US and Japan. The EUR/USD slipped from 1.3240 to 1.3120.
Meanwhile, the JPY continues its recent renewed weakness. The USD/JPY finished the week at 97.90, now someway off the previous week’s lows around 93.80. But this is still well short of late-May highs around 103.70.
Over the longer-term we expect further JPY weakness as the Bank of Japan implements continued easing, in pursuit of its 2% inflation goal. On Friday, Governor Kuroda, reiterated in a speech that the BoJ will continue easing to achieve stable price growth.
The AUD gained some reprieve on Friday, consolidating around the 0.9220 level. The risks around the outlook for the AUD are still to the downside. The prospect of less Fed stimulus and greater volatility ahead reduce the attraction of the AUD ‘carry’ trade, while the fundamentals for the AU economy have also become less rosy.
Throughout this week, there is the usual scattering of US data releases such as consumer confidence, pending home sales and the Chicago PMI. However, Federal Reserve members are also out in force, no doubt giving their individual spin on the Chairman’s latest message. Voting members may have some ability to influence market expectations.
Across the Atlantic, the German IFO business survey will be delivered tonight, which is expected to hold fairly steady. UK house prices are also scheduled.
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