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NZ$ higher against majors; better-than-expected trade deficit offsets impact of Fonterra payout revision; German business survey results grim reading

Currencies
NZ$ higher against majors; better-than-expected trade deficit offsets impact of Fonterra payout revision; German business survey results grim reading

By Raiko Shareef

NZ Dollar

The NZD saw a mild bounce, as commodity currencies rose off the lows they had made in the week’s first half. NZD/USD is 0.2% firmer at 0.8070.

This came despite a largely negative set of headlines from Fonterra’s annual results, where the co-operative dropped its 2014/15 payout forecast from $6.00 kg/MS to $5.30, which was toward the lower end of expectations.

Furthermore, Fonterra noted that downside risks remain, stemming from rising global supply, Russia’s import ban, and Chinese inventory.

The negative sentiment there was offset to a certain degree by the trade deficit printing at $472m against market expectations of $1,125m. This relatively healthy result stemmed from solid export volumes, and softening capital goods imports. This result helped NZD find its footing back above 0.8050.

With nothing on the calendar locally, we suspect that NZD will wash around in line with AUD and other commodity currencies today. We see initial support at 0.8040, and resistance at 0.8120.

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Majors

European currencies are worst off this morning, led lower by EUR after a depressing business survey out of Germany. Commodity-linked currencies bounced off their lows. The net effect saw the USD higher still, with the Bloomberg Dollar Spot Index now up 5.9% for the quarter-to-date.

Germany’s Ifo business survey made for grim reading overnight, with the overall business climate index dropping 1.6 points to 104.7, a steeper slide than expected. Analysts note that this is consistent with German GDP growth of less 1.0%. It was only five months ago when the survey was signalling growth in the region of 3.0%.

This survey, along with the downbeat signals from Tuesday’s PMI readings, helps to build expectations that the ECB will be forced down the path of sovereign bond purchases before long. For us, it is a depressing indictment of Europe’s woes (and the challenge the ECB faces) that investors are unsatisfied with negative interest rates, a low-cost bank funding program, and an upcoming program of asset-backed security purchases.

EUR/USD weakened by 0.5 to take it 1.2780, the first time it has dropped below 1.28 since June 2013. This softness weighed on European currencies more broadly, with the CHF and the Scandinavian set down between 0.4% - 0.6%. The GBP is off by 0.3% against the USD to 1.6340, with the pound struggling to hold its head above 1.64 in recent days.

Exceptionally strong housing data from the US helped the USD’s cause. New home sales rose an unlikely 18.0% m/m, its strongest monthly gain since 1992. While much of that strength is liable to unwind next month, the underlying tone for the US housing market remains one of improvement. This helped the S&P 500 gain sharply in the second half of the session, to sit 0.8% higher currently.

Yesterday, the RBA came out swinging against the speculative elements of Australia’s housing market, in its semi-annual Financial Stability Report. The RBA called the housing market “unbalanced”, and flagging that it was in discussions with other regulators about further steps to curb pressures.

Our NAB colleagues consider this the first real sign that macro-prudential tools are on the policy agenda, and could be implemented within the next few months. RBA Governor Stevens is speaking as part of an economic panel today – his remarks will be watched closely for hints as to the types and timing of macro-prudential tools.

As we noted yesterday, such a move would be negative AUD, as it would keep the RBA on hold for longer. The AUD paid little heed to that idea yesterday, instead recovering 0.4% from its early-week slump to 0.8880.
Apart from Governor Stevens’ speech, there is little on the data calendar to excite us. US durable goods orders will be the pick of the evening.

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