by Kymberly Martin
NZ Dollar
The NZD/USD sits at a similar level as yesterday morning, at 0.8250, having traded above 0.8280 overnight.
Yesterday’s Half Year Economic and Fiscal Update confirmed the NZ fiscal accounts are on a solid footing.
As economic momentum is picking up, stronger revenues will help contribute to the Government reaching surplus in the year to June 2015. Government bond issuance programmes have also been reduced .
Overnight, in the latest global dairy auction, average prices were up 0.2% from the previous event, to be 51% higher than a year ago.
Prices remain very strong, and the forward price curve is still generally upward sloping. This continues the recent theme that dairy will provide a very large income boost to NZ over the coming year while supporting improvement in the external accounts.
The NZD took all the positive domestic news in its stride over the past 24-hours without demonstrating too much excitement; a lot of the NZ ‘good news’ story is now well known.
In addition, heading into tonight’s US FOMC meeting the market is likely reticent to take on addition ‘risk’. The NZD continues to be seen as a ‘risk sensitive’ currency. Our global risk appetite index (scale 0-100%) remains at a contained 60%.
The NZD was fairly range-bound relative to its key European peers overnight. However, it continued its ascent relative to the AUD.
Contrasting Trans-Tasman fiscal trends were highlighted yesterday as the AU Mid-Year Budget update was tabled alongside the NZ HYEFU. The NZD/AUD pushed up to 0.9290, a new cyclical high.
Today, the NZ current account balance will be released along with the ANZ business confidence survey and the RBNZ’s weekly mortgage approvals data. More broadly, the market will have its eyes firmly fixed on the US FOMC meeting in the early hours oftomorrow morning (NZT).
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Majors
Heading into tonight’s crucial US FOMC meeting, the USD index remains around 80.10.
The AUD and GBP have underperformed over the past 24-hours while the JPY outperformed.
Equities were softer again overnight, as our risk appetite (scale 0-100%) has slipped a little further to 60%. The market appears reticent to take on any aggressive positions ahead of tonight’s highly anticipated FOMC meeting. It is a ‘live’ meeting in terms of its potential to announce the start of the Fed’s ‘tapering’ process.
The USD appears to remain ambivalent about that prospect. The USD index traded up toward 80.30 overnight before returning to sit at 80.10 this morning.
Overnight, the December German ZEW survey suggested financial market participants have ended the year with a fairly optimistic outlook for the region. The economic sentiment index (62.0 vs. 55 expected) was the highest reading since April 2006. Actual conditions were more pedestrian at 32.4. However, the overall message seems to be that solid German growth is helping Eurozone as a whole to expand. Meanwhile the EUR/USD traded between 1.3730 and 1.3780 overnight, returning to sit around 1.3760 this morning.
The GBP was a notable underperformer overnight, extending its pullback from early December highs. Data overnight showed UK core CPI at 1.8%y/y, providing some comfort to the BoE as it maintains highly accommodative monetary policy. The GBP/USD has declined from above 1.6320 last evening to trade close to 1.6260 currently.
However, the dubious honour of key underperformer was held by the AUD over the past 24-hours.
Several factors likely contributed. First, the RBA’s minutes yesterday repeated the AUD remains “uncomfortably high and a lower level would likely be need to achieve balanced growth”. Second, yesterday’s Mid-Year Budget showed the deficit for 2013/2014 to have blown out to AU$47b from the Treasury’s last estimate in August of AU$30.1b. GDP forecasts were also revised down.
Finally, as the market approaches tonight’s US FOMC meeting it is reticent to take on additional ‘risk’. The AUD/USD sits around 0.8900 this morning, while crucial support remains at the August lows of 0.8850.
Tonight, all eyes will be on the US FOMC meeting. In addition, the German IFO business survey will be released along with a slew of UK data including its employment report and the Bank of England minutes.
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