by Raiko Shareef
NZ Dollar
The NZD held on to close Friday perched atop the G10 leader board against the USD, inching 0.1% higher to 0.8688.
Friday’s CFTC positioning data showed that net long positions for the NZD rose to 19.8k, from 18.5k a week earlier.
It is remarkable that the NZD remains lofty despite deteriorating risk appetite in global market, but we are mindful that low FX volatility has boosted the attractiveness of the kiwi as a target currency for the carry trade.
NZ food price data (released Friday) saw little reaction, falling 0.3% m/m in March, but up 1.2% y/y from a year ago. This solidifies our expectation for Q1 CPI (due Wednesday) at 1.6% y/y, a touch lower than the RBNZ’s March MPS forecast of 1.7%.
This week, we look forward to Wednesday morning’s Global Dairy Trade auction, as commodity prices continue to be a key driver of the NZD. Prices have dropped 18% in the past two months.
Given the underlying supply dynamics, we favour a further fall at the upcoming auction.
The NZD/USD opened fairly quietly this morning, and we see support at 0.8600, with resistance at 0.8740.
The NZD/EUR looks set to bounce early this week, given ECB President Draghi’s EUR-negative comments over the weekend.
----------------------------------------------------------
To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.
----------------------------------------------------------
Majors
The USD closed marginally stronger on Friday, but the day was dominated by price action in other markets.
Equity markets continued to sell off, driven by weakness in the (purportedly overvalued) US technology sector. The tech-heavy Nasdaq lost a further 1.34%, taking its weekly fall to 4.3%. The S&P500 fell by 2.6% for the week, its worst since 2012. A disappointing earnings report from JP Morgan helped weigh on the broader equity market.
It should come as no surprise, then, that our Risk Appetite Index sits at 60%, down from 69% a week earlier. As a result, the USD built on gains made over Thursday, with the US Dollar Index up 0.1% to 79.5. The CHF also rose, while the JPY and gold weakened marginally (but closed higher for the week).
With all the action in equities, there was precious little else that could hold the market’s attention. But a smattering of comments from central bank officials caught our eye:
Firstly, Bank of Japan Governor Kuroda said that the Bank was only halfway towards meeting its price objective. Separately, news reports released late Friday asserted Kuroda would be meeting with Japanese PM Abe ‘this month’ to discuss monetary policy. This seems unlikely to be a coincidence, given the JPY threatens to strengthen toward ¥100 per USD, while Japanese equities continue to slide.
Secondly, ECB President Draghi made some of his strongest comments on the EUR to date, saying that “the strengthening of the exchange rate requires further monetary stimulus.” While the currency is not a policy target for the ECB, senior officials have taken to reminding markets about its importance to price stability.
Looking ahead at the (holiday-shortened) week, we suspect that US data and events will attract the most notice. On the data front, retail sales are expected to rise by a solid 0.8% m/m, while annual CPI inflation should lift to 1.4% y/y. The full range of housing data are also due over the next two weeks. Not least, Fed Chair Yellen has two speaking events this week.
Elsewhere, the RBA’s minutes for April will hopefully reveal more colour around the Board’s thinking on Australia’s economic momentum. Wednesday sees the monthly Chinese data dump for March, including fixed asset investment, retail sales, and industrial production. If that wasn’t enough, Q1 GDP will be thrown in for good measure. The consensus is looking for a modest slowdown in growth to 7.3% y/y, from 7.7% in Q4 2013.
Other news:
* China’s CPI for March printed at 2.4% y/y, as expected
* US University of Michigan’s consumer confidence (preliminary reading) for April jumped to 82.6 from 80.0 in March (81.0 expected).
* US PPI well above expectations at +0.5% m/m against +0.1% expected.
* USD long positions vs G10 currencies further pared to+18k from +31k a week earlier.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.