Falling commodity prices weigh on the local currency; international data relatively strong

by Raiko Shareef

NZ Dollar

The NZD was the worst performing G10 currency overnight, shunting 1.0% lower against the USD, to 0.8560 this morning.

The sharp fall in yesterday morning’s Global Dairy Auction (discussed in yesterday’s note) certainly contributed to the negative sentiment toward the NZD.

Later in the morning, the ANZ Commodity Price Index eased by 0.1% m/m in March, following the record high in February. World prices remain nearly 14% higher than they were a year ago, but we expect the price of NZ’s commodity basket to decline through the year.

We continue to project that NZ’s terms of trade will peak in Q1 (with that data due in early June).

Yesterday’s move took the NZD/USD through support at 0.8610, breaking the upward trend that has been in place since late February. Given the high level of the NZD/USD in recent weeks, we suspect that exporter demand will emerge around the current 0.8550 level. Looking further over the parapet, we see support in the 0.8500-0.8520 region. On the topside, Monday’s closing level of 0.8640 will provide some resistance.

The NZD is also uniformly lower against the crosses, performing worst against GBP and AUD. For the NZD/AUD, we see initial support at 0.9240, and resistance at 0.9330.

There are no local data releases due, so the NZD will take its cues from sentiment offshore, particularly around Australian data releases.

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Majors

The USD is broadly stronger against its peers overnight, gaining against 8 of 10 major currencies. The NOK/USD and GBP/USD managed to hold onto gains of less than 0.1%.

While headline US data were mixed, investors decided that the details were good enough to warrant supporting the USD.

First out of the gates was the ADP private payrolls data for March, which printed at 191k, just below expectations of 195k. But the previous month’s data was revised higher from 139k to 178k.

Secondly, factory orders rose by 1.6% m/m in February, higher than the 1.2% increase expected. As a result, the US Dollar Index is 0.2% higher this morning.

The AUD has held its ground, despite a disappointing Australian building approvals outturn, where approvals fell by 5% m/m against an expected 2% fall. Our NAB colleagues put this down to a correction after January’s outsized 8.8% gain. The trend for approvals is still rising, with residential construction set to be a significant contributor to Australia’s growth over the year ahead.

The Russian rouble was the worst performing currency against the USD, sliding nearly 1.0% despite an apparent easing of tensions between Russia and the United States. Part of this can been attributed to Russia’s Finance Minister declaring that the country will re-commence purchases of foreign currency for its reserves.

In the day ahead, Australian retail sales will be a highlight for the local session. The series has seen nine months of consecutive increases, with the latest result a stellar 1.2% m/m rise. Markets are expecting a much more modest 0.4% increase.

RBA Governor Stevens is also due to make some remarks at a business lunch today. While traders will be watching closely, it would seem unlikely that Mr Stevens strays far from the view espoused in Tuesday’s policy statement.

The marquee event tonight will be the ECB’s policy decision. No outright change in policy settings is expected, with officials recently arguing that the current low level of inflation will be temporary in nature. ECB President Draghi will most likely reaffirm the Bank’s readiness to act, should economic and financial conditions worsen.

All its research is available here.