by Raiko Shareef
NZ Dollar
The NZD is slightly stronger against the USD, helped by rebounding global risk appetite, sitting at 0.8380 this morning.
Local data released yesterday showed that world and NZ prices for NZ’s major primary export products both rose 0.9% m/m, led by dairy and forestry. This sets up further gains in the terms of trade in Q1, following Monday’s strong Q4 results.
Terms of trade are coming in clearly stronger than the RBNZ had factored into its Dec 2013 MPS.
These commodity income effects will be one factor that will be encouraging the RBNZ to get on with the job of normalising rates sooner rather than later.
The 4% fall in the Global Dairy Trade Index, at this morning’s auction, does not change that outlook.
The NZD/AUD saw a small bounce from RBA comments noting that the AUD is high. The NZD/AUD gained 0.4% on the release, but is effectively unchanged from levels seen yesterday morning around 0.9370. The NZD/JPY has been benefitted from the turn in risk sentiment, gaining 0.8% to sit back around the 85.60 level.
Today sees the release of another GDP input, the Building Work Volumes for Q4. BNZ is expecting an increase of 4.0% q/q, up from 1.4% previously.
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Majors
Recovering risk appetite has seen the JPY and CHF sold, and the USD is weaker against most emerging market currencies.
With a dearth of data releases overnight, markets were driven mostly by developments in Ukraine. Last night, Russian President Vladimir Putin broke his silence on the crisis for the first time, saying that he sees no need at present for Russian forces to intervene in Ukraine (but reserves the right to protect the Russian-speaking population in that country). He denied that the military personnel in unmarked uniforms who control Crimea are Russian, describing them as “local defence forces”.
Curiously, markets reacted positively to headlines that Russian troops had been ordered back to barracks. These headlines clearly referred to troops involved in training exercises which began last week, and were always slated to return to their bases yesterday.
Nevertheless, risk appetite recovered sharply. Equity markets rallied strongly, with the US S&P 500 up 1.5% and the Euro Stoxx 50 up 2.7%, with the former hitting a new all-time high. The JPY and CHF (safe-haven currencies) weakened by 0.7% and 0.5% against the USD respectively.
We remain cautious on this risk rally, as developments still have some way to run. Putin’s hour-long news conference offered no hints as to how this crisis will play out.
Closer to home, the RBA kept its policy settings unchanged yesterday, as unanimously expected. It maintained its neutral bias, repeating that “the most prudent course is likely to be a period of stability in interest rates.”
The most significant change was a renewed swing at the AUD, something which was notably absent in the February Statement. Yesterday, the RBA noted that the AUD is “high by historical standards”. The AUD/USD lost 0.3% upon the release, but recovered to be slightly higher since yesterday morning at 0.8940.
Australia’s Q4 GDP is due for release today, with our NAB colleagues picking a 0.7% q/q rise. Recall that this forecast had been revised lower in the wake of last week’s shocking capital expenditure report.
Separately, services PMI prints are due in China, the UK, and the euro-zone. In North America, we will be watching the Bank of Canada rate decision and US private payrolls data.
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