Prices for NZ’s exports at a 17-month low, NZD down -0.7% with BNZ expecting dips toward 82.8 USc

By Raiko Shareef

NZ Dollar

The NZD slid along with most major currencies as the USD rallied broadly overnight, but took an additional hit from yet another poor dairy auction.

NZD/USD is down 0.7% at 0.8320.

The GlobalDairyTrade Index tumbled a further 6% in the auction overnight, taking the cumulative decline since early February to 45%.

But offsetting the bad news for Fonterra (and other dairy producers), the NZD actually responded to the declines, unlike the negative auctions earlier in the year.

Yesterday, the ANZ commodity price index fell by 3.3% m/m in August, reflecting falls in dairy prices, offset by gains in beef and aluminium. Overall, though, prices for NZ’s exports sit at a 17-month low.

On the crosses, NZD/EUR is down sharply, after EUR was resilient to the USD gains across the rest of the board. The cross is by 0.8% at 0.6330, but remains in the range maintained by the 50- and 100-day moving averages. These two technical struts have largely contained NZD/EUR since late July. We expect a drift lower to 0.62 by year-end.

Note that NZD/USD slid below 0.8300 overnight, for the first time since February.

Technically, there is strong support at 0.8260. For today, we expect dips toward 0.8280 to be bought, with initial resistance at 0.8350.

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Majors

The USD is up strongly over the past 24 hours, having rallied curiously in the Asian session, and then justifiably extending these gains on upbeat US data. The broad Bloomberg Dollar Spot Index is up 0.4%, to within spitting distance of its 2014 high.

During our day, the USD rallied sharply against the majors, on no notable data or news flow. The inspiration seemed to come from traders successfully targeting the recent highs in USD/JPY around 104.50. That USD strength percolated throughout the G10 FX space, and held its gains.

Of course, the move worked with the grain of burgeoning USD optimism, as improving US data adds to the case for Fed Funds Rate hikes by mid-2015. Last night’s outturns did not disappoint on this front. The US ISM manufacturing index defied expectations of a pull-back from an already very-high 57.1, instead pushing to 59.0. Separately, construction spending surged in August, up 1.8% m/m against expectations of a 1.0% rise, with positive revisions to July’s data. Unsurprisingly, the USD benefitted, strengthening by 0.7% against the JPY for the day to 105.10, nearly its highest in 2014.

Along with the JPY, the GBP was a serious underperformer against the USD, but this time with politics in the limelight. The latest YouGov poll saw the ‘No’ camp for Scottish independence lose ground markedly, with the difference between the pro- and anti-union just 6 percentage points. A month ago, the pro-union camp was leading by full 22 percentage points. The increased prospect of a victory by the pro-independence camp saw GBP/USD slide 0.7% to 1.6480.

Yesterday, the RBA largely left the press statement unchanged at its August meeting, and still anticipates “a period of stability in interest rates”. With the neutral bias firmly in place, our NAB colleagues expect the RBA to remain on hold through to late 2015. The AUD was left unchanged after the statement, but took part in the broader sell-off against the USD. AUD/USD is 0.6% lower at 0.9280.

Today sees Q2 GDP in Australia, where we expect to see a 0.2% q/q rise. In addition, RBA Governor Stevens is due to speak to an economics audience in Adelaide.

All its research is available here.