By Raiko Shareef
NZ Dollar
NZD/USD looked to test 0.82 last night, but bounced to sit at 0.8240 currently, down 0.1% for the day.
After breaking technical support at 0.8260, investors are wary of pushing too hard ahead of the RBNZ this morning.
The pain remains to the topside, with investors largely positioned for further falls in NZD.
Should the Bank fail to deliver on expectations of a less-hawkish tone, then we might be in for a sharp and bloody squeeze higher.
That is not our central expectation. It would be extremely surprising to hear the Bank talk a more aggressive rate track, and delivering what the market expects (a softening on tone) should ease the NZD’s path lower.
Furthermore, we can’t imagine that the Bank would turn down the ante on the currency’s strength, after using the sensitive term “unjustified” in July. Removing that phrase would provide some relief for NZD bulls. The Bank would be well aware of that, and unlikely to welcome such a reaction.
Keep in mind too that the received wisdom is that the RBNZ was active in selling NZD in late August. Governor Wheeler might use this as an opportunity to address these (unconfirmed) rumours.
The risks are skewed that the Governor says something NZD negative, either by confirming currency intervention, or by refusing to be drawn on the topic.
We will be watching the press conference and the subsequent appearance in front of Parliament’s Finance and Expenditure Committee (FEC) carefully for this.
Recall that in June 2013, Governor Wheeler surprised all by admitting the Bank had been pushing against the NZD’s strength. He chose to do so at FEC, rather than at the MPS press conference.
Today, we see initial support at 0.8200, ahead of 0.8120. Resistance sits at 0.8350.
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Majors
Not much to report from the overnight session, except for the fact that currency markets remain jittery.
The USD continued to make gains, though the GBP bucked the trend, strengthening on a poll result that pointed to Scotland remaining in the union.
Measures of major currency volatility continue to track higher, now up some 26% since the start of the month. Deutsche Bank’s CVIX measure (a market standard) sits at 7.8%, up from record lows struck in mid-July of 5.0%. Still, this remains well below historical norms, with the 5-year average sitting at 10.3%. As economic stories diverge (see the US vs Europe, for example) we would expect volatility to lift further, as investors start playing the divergence in views.
The GBP experience a bit of a relief rally, after a poll in Scotland’s Daily Record newspaper showed that, excluding uncertain voters, the pro-union camp had a six-point lead at 53%. This was the same margin as the poll showed two months ago. Recall that Monday morning’s plunge in GBP came off the back of a different poll (YouGov). GBP/USD was the best performing major overnight as a result, up 0.5% to 1.6190. But if investors are simply going to take cues from every fresh poll, ignoring their inherent biases or quirks, then the GBP looks set for a rollercoaster week ahead.
The AUD continues to be a focus of attention, breaking below the 200-day moving average yesterday to test 0.91 overnight, before rebounding. It will remain under pressure heading into today’s labour market report, where the market is looking for a minor improvement in the unemployment rate to 6.3%. For the day, AUD/USD is 0.5% weaker at 0.9160.
Apart from that, it is a fairly light data calendar for the day ahead. China’s CPI figures might attract some passing interest, and so should Germany’s final CPI reading for August, given the ECB’s focus on arresting plunging inflation expectations.
Other news:
* JP machine orders +1.1% y/y (+0.5 exp.)
* AU consumer confidence -4.6% m/m (after -3.8% prev.)
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