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Economic confidence taking a battering everywhere, except the US (and NZ), HYEFU may be ignored by currency markets

Currencies
Economic confidence taking a battering everywhere, except the US (and NZ), HYEFU may be ignored by currency markets

By Raiko Shareef

NZ Dollar

The NZD sits mid-pack amidst a broad (but mild) USD rally, as poor risk sentiment continues to reign.

NZD/USD is 0.5% weaker at 0.7740.

Currencies continue to trade at the whim of investor sentiment, with the USD likely to outperform as a safety bet. As a result, we would expect NZD to continue to soften, but not as dramatically as those countries more directly linked to oil.

For NZD/USD, we pick resistance at 0.7790, and initial support at 0.7670.

The JPY’s outperformance in the nervous market environment means that NZD/JPY is sharply lower, off by 1.3% for the day at 91.20. It looks set to make its lowest closing level since mid-November.

We suspect this has further to run, and pick the cross to fall below 90 by early 2015.

Today, the local calendar is light, with just the Government’s Half-Year Economic and Fiscal Update due.

There is some chance that much-vaunted return to surplus this fiscal year might not materialise, thanks to markedly lower revenue as dairy prices dive. We doubt NZD will take any cues from this.

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Majors

Risk sentiment remains fragile, with equities and emerging-market currencies feeling the most pain. Oil prices remain at the centre of market attention, as opposed to any fresh news or data. The USD is slightly stronger in this environment, with JPY the only clear winner, benefitting from a safe-haven bid

Crude oil prices looked to be starting the week on a positive note. WTI rose by nearly 3% against its opening price, before rolling over. It now sits 2.3% lower for the day. The capitulation there weighed on equities, which had been  holding their own. The Euro Stoxx 50 closed 2.8% lower, with Bank of Greece Governor adding to the gloom by saying that the “Greek crisis has taken serious proportions”.  The S&P 500 was about 1.0% lower for the day, but has since pared about half its losses.

The moves overnight were certainly not data driven, with markets hardly blinking at rather contrary pieces of US data. The Empire State manufacturing index unexpectedly crashed from +10.6 to -3.58 (a rise to +12.40 was anticipated). That ostensible weakness flies in the face of the myriad (robust) US data of late. Case in point, the later-released industrial production, which showed a gain of 1.1% m/m against +0.5% expected, with upward revisions to previous months. Most commentators are treating the Empire print with a great deal of caution.

Amongst currencies, the emerging markets set is gaining attention this morning, with some EM majors falling to record lows against the USD. The Turkish lira is 2.9% weaker, aided by a rising political risk premium. However, that hardly holds a candle to the Russia rouble, which is 10.8% weaker for the day, taking its year-to-date loss to 48.8%.

In the early hours of this morning, the hostage situation in Sydney came to a tragic end, with three people killed. Australia’s Treasurer Joe Hockey delayed the release of the Mid-Year Economic and Fiscal Outlook (MYEFO) yesterday while the authorities addressed the emergency. In the end, the MYEFO came in largely as expected. With iron ore expected to remain at $60/tn, projected budget deficits were revised higher, and the return to surplus pushed out two years to 2019-20. The government also expects the labour market to worsen in the near term. A series of press leaks meant that the AUD hardly budged on the release.

Today, the release calendar promises preliminary PMI readings from China, Europe, and the US, as well the ZEW survey from Germany, and US housing data. Also of interest will be the RBA Minutes, where the market will look for signs of an emerging easing bias. We suspect it is still too soon for that.

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Source: CoinDesk

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