by Raiko Shareef
NZ Dollar
The NZD maintained its station in and around the 0.8500 figure over the past 24 hours, keeping a tight range.
It begins today just below 0.8500.
There was no local data yesterday to provide direction, and the NZD failed to take cues from the global equity market sell-off.
Looking past the Chinese data due today, investors are simply seeking a green light from the US data tonight to keep the USD bid (and the NZD under the pump).
On the crosses, the AUD’s underperformance overnight (and the past few days) has helped the NZD/AUD rebound from 0.9060 to 0.9140 this morning.
The failure to breach 2014 lows has us favouring a further move toward 0.9300, as we suspect the AUD has more to lose against the USD than the NZD does.
For the day ahead, we still see support at 0.8450, and initial resistance at 0.8520.
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Majors
A rather ho-hum day for currency markets, with the attention elsewhere (equities, namely). The USD continues to march higher ahead of tonight’s major releases. The broad Bloomberg Dollar Spot Index (BBDXY) is 0.1% stronger this morning.
Investors’ eyes really are on equity markets today, with benchmark indices a sea of red. The S&P 500 is 1.6% lower, its sharpest one-day decline since early April. The Euro Stoxx 50 lost 1.7%, taking it below the 200-day moving average for the first time since last year’s taper tantrum.
A mix of credit and earnings news appears to have provoked this (as yet) mild correction. The ailing Portuguese bank Espirito Santo shed 42% after being ordered to raise capital, following a €3.6b first-half loss. Earlier in the day, S&P Ratings deemed Argentina to have defaulted on its debt. Poor earnings reports from Samsung, Kraft and Adidas (amongst others) helped to weigh on global equity indices. Volatility is sharply higher, with the VIX Index above 16.0 for the first time since April.
But we would be loath to declare this a wholesale selling of risk. For one thing, traditional safe-haven gold is down by 1.0%. Nor have the JPY or CHF performed remarkably better than their peers. US Treasury yields don’t look to have suffered from any flight to safety.
Data overnight garnered little interest. Euro-zone headline inflation printed slightly softer than anticipated at +0.4% y/y (vs +0.5 exp). But this mild miss was not considered enough to stoke the ECB into further action. A significantly weaker Chicago PMI (+53 vs +63 exp) was largely ignored.
Of the fairly modest moves in currencies, the AUD was an underperformer. Yesterday, building approvals came in at the bottom end of analyst picks, falling by 5% m/m. Separately, Australia’s terms of trade was confirmed to have fallen by 4.9% over Q2. These helped the AUD/USD weaken by 0.4% to 0.9290.
Tonight is a big one for markets, with investors looking for reasons to keep bidding the USD higher. A swathe of US data due will be headlined by non-farm payrolls, the unemployment rate, and core PCE inflation. The only notable releases beforehand will be the official and HSBC versions of China’s manufacturing PMI.
Other news:
* UK Nationwide house prices rose by 10.6% y/y vs 11.3% exp.
* German retail sales rose by 0.4% y/y vs 1.3% exp.
* Four-week average of US initial jobless claims fell to 297k, the lowest level since April 2006.
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