By Raiko Shareef
NZ Dollar
The NZD has slid lower, once again taking its cues from its peers. NZD/USD is 0.7% weaker at 0.7830, performing better than every other G10 currency apart from the safe-havens JPY and CHF.
The NZD has simply traded in line with the AUD over the past 24 hours. The latter has had mixed fortunes, with some enthusiasm around a bounce in iron ore prices offset by a risk-negative sentiment globally.
On the crosses, note that NZD/GBP looks to have broken above 0.49. We suspect this will be maintained in the near-term, as investors wind back UK rate hike expectations.
As anticipated, NZD/JPY is back below 84.0 as global growth concerns continue to weigh.
There are no local data releases today, but all eyes on the GlobalDairyTrade auction overnight. Following the last auction’s 7.3% fall, another sharp drop would be an opportunity for NZD bears to re-test the 0.7700 level.
Today, we mark initial support at 0.7800, and resistance at 0.7950.
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Majors
The USD gained 0.3% against a broad set of currencies overnight because, simply put, the other major currencies look pretty unappealing. The ‘big dollar’ is finding a base about 1.0% below the four-year high it hit earlier in October, and just above the level following last year’s taper tantrum.
The focus was firmly on Europe overnight, with poor economic news out on both side of the English Channel. On the mainland, Germany’s ZEW survey of analysts was a shocker. The “current situation” measure plunged from 25.4 to 3.2, much steeper than the decline to 15.0 anticipated. This is its lowest reading since mid-2010. The “expectations” component dropped below zero for the first time since November 2012.
This fuels worries that Germany will experience negative growth in Q3, which would place it in technical recession. Little wonder the German government yesterday sharply downgraded its growth forecasts for 2014 and 2015. It now expects the economy to expand by 1.3% next year, down from 2.0% predicted previously.
To top it off, euro-zone industrial production contracted by 1.8% m/m in August (a milder contraction was expected). July’s reading was also revised lower.
Taking that all together, it’s a little surprising that EUR has not fallen harder overnight. EUR/USD is 0.8% weaker at 1.2650.
In the UK, inflation was much softer than anticipated in September. Headline CPI fell from +1.5% y/y to +1.2%. The market had picked a decline to 1.4%. Core inflation also crunched lower, from 1.8% to 1.5%. In August, the BoE anticipated that, on average, prices would increase by 1.8% over Q3. Instead, policymakers will be contending with a much softer 1.4%. This will only accelerate the winding back of market expectations for Bank Rate hikes. That was reflected in GBP/USD, which is off by a punchy 1.1% to 1.5900, a fresh 12-month low.
Against all that, a relatively stable reading in the US NFIB small business optimism index was a sight for sore eyes. The index slipped from 96.1 to 95.3 in September.
In other markets, US equities are attempting to rally, after the S&P 500 broke below the 200-day moving average yesterday. Earning season is underway, and initial reports have been relatively positive.
The real action is in commodities, though, with Brent crude oil having collapsed 4.9% overnight to $84.7. This takes the overall decline since late June to an eye-watering 27.0%. Oil-sensitive CAD has slid to its weakest level since the financial crisis, 0.8% weaker against the USD today at 1.1290.
Today, China’s inflation prints may garner attention from a market nervous about a softening economy. Similarly, Japanese industrial production and Germany inflation readings will be watched. US retail sales will be the other major data release.
ECB President Draghi is due to speak twice tonight. It will be interesting to see what he makes of the continued collapse in medium-term inflation expectations. The 5-year 5-year inflation swap rate fell to 1.82% overnight.
Recall that Draghi cited that measure’s slide below 2.0% as a motivating factor behind the most recent round of policy action.
Other news:
*AU NAB business confidence down to +5 from +8 prev.
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