Eyes on business confidence and inflation expectations as observers see a possible break lower for NZD

by Raiko Shareef

NZ Dollar

The NZD is essentially unchanged from Friday morning around 0.8280.

A break below well-respected support at 0.8280 failed to be sustained last week, despite the disappointing HSBC PMI out of China.

This week, we begin just inside the long-held 0.8280-0.8380 range.

If there is a break below, we see short-term support at 0.8260, and 0.8210 thereafter.

With a long parade of NZ data this week, Friday afternoon’s ANZ business survey will probably be the crowd favourite.

Assuming its activity indicators maintain their mojo, the news could well be in its inflation gauges (especially with January’s OCR Review noting that “…firms’ pricing intentions have been rising”).

Similarly, it will be interesting to see if CPI inflation expectations have risen, as per Tuesday afternoon’s RBNZ Survey of Expectations. The key 2-year ahead number from last time was 2.3%, stubbornly above the 2.0% mid-point.

In the context of recent focus on emerging markets, the NZD (along with the rest of the risk asset suite) might draw some encouragement from the weekend news that Ukraine’s parliament on Saturday voted to strip President Yanukovich of his power and call early elections for 25 May. But with the ousted president crying coup from the country’s Russian-dominated east, any bounce will be moderated by a situation that remains very fluid.

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Majors

After a tumultuous Thursday, currencies cruised into the weekend – from Friday morning to the close on Saturday, no major currency was changed by more than 0.25%.

The GBP was the worst performer after the UK’s January retail sales fell by 1.5%, underperforming expectations for a 1% drop. A 3.4% fall in food sales led the decline, so rather than stocking up in front of the floods or restocking to replenish ruined food, the bigger theme looks to have been staying indoors and running down the contents of the freezer. The GBP/USD closed 0.2% lower at 1.6620.

Friday’s US data also disappointed expectations. Existing home sales fell by 5.1% to 4.62m versus expectations for 4.1% and 4.67m.  While largely dismissed as weather related, falling affordability and lack of supply also appear to be factors that are contributing to a softer housing market beyond the impact of the weather. The US Dollar Index fell 0.1% over the day to close at 80.30.

Looking ahead, the major US data releases this week will be consumer confidence (Tue) and the second reading of Q4 GDP (Fri). Consumer confidence is expected to ease from a five-year higher to 80.0 in January, while economists are picking that GDP will be revised lower from 3.2% y/y to 2.5%, driven by weaker consumption.

Across the ditch in Australia, this week sees the first partials for Q4 GDP released – Construction Work Done (Wed) and capital expenditure (Thu). The latter includes the first estimate for 2014-15 capital spending, so the mining numbers will be keenly watched.

Elsewhere, Germany’s IFO survey (Mon) and Japan’s monthly data dump (Fri) will attract some attention. Lastly, China’s official manufacturing PMI (Sat) is expected to eases slightly to 50.1, just above the breakeven 50-mark which delineates expansion and contraction. We can already tell you that any surprise will set the tone for AUD and NZD first thing next Monday morning.

Other news:
* Canada’s retail sales (ex auto) for December disappoint at -1.4% m/m vs -0.1% expected.
* Canadian CPI beat expectations at 1.5% y/y in January vs 1.3% expected.

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