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Eyes on the GDT auction to set the next NZD trend; eyes on US Fed and BofE rate rising signals

Currencies
Eyes on the GDT auction to set the next NZD trend; eyes on US Fed and BofE rate rising signals

By Kymberly Martin

NZ Dollar

The NZD/USD sits a little lower, at 0.8470 this morning.

The strong NZ Performance of Services Index (PSI) reading made little impact on the NZD yesterday morning. The PSI rose to 58.4 from 54.7. Combined with the steady PMI reading for July (53.0) it signals an above-trend pace of GDP growth.

Despite these signs of continued domestic support for the NZD, it was a casualty of broader USD strength overnight. From early evening highs above 0.8500 it now trades around 0.8470.

Moves on most of the crosses were unremarkable overnight.

The NZD/AUD sits a little lower at 0.9090 this morning as we approach an important couple of events for the AUD, in the form of RBA Minutes and Governor Steven’s speech. Solid support for the NZD/AUD remains at the 0.9050 level. We continue to look for a move back toward 0.9260.

Domestically today, PPI and capital goods price data will be released as the latest pricing indicators. In this vein it will be interesting to see the result of the RBNZ’s survey of 2-year-ahead inflation expectations, to be released today. The previous reading, of 2.36% was drifting away from the RBNZ’s 2.0% mid-target.

The Government’s PREFU will also be released today, as a legal necessity ahead of the 20 September elections. But it is unlikely to reveal much beyond the May Budget.

More important for the currency will likely be the latest GDT dairy auction to be held in the early hours of tomorrow morning (NZT). Only a big bounce would challenge the negative trend that now appears firmly established.

Otherwise, another soggy result could further weigh on the NZD. Key support for the NZD/USD remains at 0.8400, while resistance is eyed at 0.8510.

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Majors

The GBP has been the strongest performer over the past 24-hours while the CHF has underperformed, in the backdrop of a stronger USD.

Market sentiment improved at the start of the week as there were reports of Ukraine and Russia diplomats working toward some resolution. Also, in Iraq, Kurdish forces retook control of its largest dam.

Our global risk appetite index has rebounded from 72 to 74%, while equities posted positive returns. The Euro Stoxx 50 closed up 1.3% while the S&P500 is currently up 0.80%.

On the data front, the July US NAHB housing market index surprised to the upside (55 vs.53). This helped propel the USD index higher. It was also aided by EUR weakness. From intra-night lows close to 81.40 the USD index now sits just below 81.60.

Meanwhile, as risk appetite has improved, demand for the ‘safe haven’ CHF has waned. The CHF has declined 0.40% against the USD over the past 24-hours.

In the early hours of this morning, headlines from the rating agency Moody’s suggested it viewed France’s missing of its 2014 deficit target as credit negative.

Moody’s has an Aa1 rating for the sovereign’s debt, and already has it on negative watch. This weighed on the EUR/USD which declined from early-evening highs closed to 1.3400, to sit at 1.3360 this morning.

The GBP was fairly well supported relative to the USD. It was likely helped by a weekend report of comments from Bank of England Governor, Carney. He said that expectations of wage recovery may be sufficient to prompt policy makers into raising rates. The BoE “don’t have to wait for the fact”. The GBP/USD sits a little higher, at 1.6730 this morning.

The AUD/USD sits just below 0.9330 as the market awaits the release of the RBA Minutes today. But more enlightening than these historic Minutes may be the RBA Governor’s testimony tomorrow. Over the past couple of weeks the RBA has revised lower its GDP and inflation forecasts. The market will be looking for any hint the Bank could contemplate a further rate cut. At present it has this priced as a 50% chance, in the year ahead.

Tonight, the focus will be on the release of UK and US CPI data. Consensus expects US Core CPI to rise 0.2% in July, to be steady at 1.9%y/y. A higher reading would likely be USD supportive as it would maintain pressure on the Fed to begin removing monetary stimulus by raising rates. Currently, the market has a first Fed funds rate hike priced for early Q3 next year.

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Source: CoinDesk

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