By Kymberly Martin
NZ Dollar
The NZD has been the worst performing currency over the past 24-hours, losing a further 1.1% relative to the USD.
The NZD/USD trades at 0.7770 this morning.
The NZD suffered another body blow yesterday afternoon after the release of RBNZ fx transaction figures for August. These showed the Bank sold NZ$521m in the month, more than we had expected. For reference, this is more than in any month during the late 2012/early 2013 selling (where a maximum of NZ$256 mln was sold in a single month). Still, it was less than the amount sold in 2007 (max NZ$1.5 bln in one month).
Taken with Governor Wheeler’s speech last week, this is a clear signal the Bank stands willing and able to push the NZD on a path to what it sees as an appropriate level.
It has still not put an explicit number on that. But its statement last week warned that the NZD has fallen by 11%, on average, in the first 12-months after previous ‘excessive peaks’.
Extrapolating for the NZD/USD, if we assume July 2014 was the peak, it would put NZD/USD at roughly 0.7400 by mid-2015.
We continue to target 0.7300 by end-2015.
However, after its precipitous fall we are wary of a bounce/period of near-term consolidation, particularly if the USD uptrend runs out of momentum.
Early last evening the NZD/USD found support around 0.7710 before inching its way back up to 0.7770 this morning. This occurred in the backdrop of a slightly softer USD.
A clear band of support now lies at the mid-2013 lows around 0.7690.
The NZD also plunged on all the crosses, after the release of the RBNZ data. However it soon found a footing and tracked horizontally overnight against its major peers.
The NZD/AUD now sits at 0.8900, with support at the early-September lows of 0.8850. The NZD/GBP sits at 0.4780, right above the levels where it found support in late-2011 and mid-2012.
Today, the domestic focus will be the release of the ANZ business confidence survey for September. However, this was conducted prior to the elections so may still carry the hallmark of pre-election uncertainty. NZ household credit data is also due.
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Majors
The USD was a little softer overnight, although most currencies tracked relatively tight ranges. Over the past 24-hours the AUD and NZD have underperformed.
The overall mood in markets was somewhat subdued, as protest for democracy continued in Hong Kong. A headline suggested the “Chinese military gives Hong Kong police 48 hours to stop demonstrations before intervening”. The Euro Stoxx 50 closed down 1%. The S&P500 opened down a similar amount, but has subsequently been grappling its way higher.
Meanwhile, data releases on either side of the Atlantic were undramatic. The US Fed’s preferred inflation measure, the PCE deflator, confirmed US inflation remains contained at 1.5%y/y. The USD index, took a breather overnight after its recent meteoric ascent. It traded down from 85.80 to 85.50.
Across the Atlantic, CPI data confirmed German inflation remains subdued, at 0.8%y/y in September. This will keep the ECB on its toes. The EUR/USD consolidated, after recent steady falls, to sit at 1.2700 currently.
Meanwhile the USD/JPY made a bold bid for the 110 level early last evening, but failed to make headway above 109.70. It has subsequently faded, to trade at 109.40 this morning. The last time the USD/JPY managed to breach the 110 level was in August 2008.
The AUD once again appeared to suffer by contagion as the NZD fell sharply yesterday afternoon. However, it managed to find support above the 0.8680 level overnight, before clawing its way back to trade at 0.8730. Today, AU private sector credit data will be released. Household credit is expected to still be solid, but offset by softer growth in business credit.
Tonight, EU employment and CPI data will be released. Neither is likely to distract the ECB from moving toward its own version of QE. The final reading of UK 2Q GDP will be released. The US Chicago PMI and consumer confidence data are also due.
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