By Raiko Shareef
NZ Dollar
NZD continued to fall overnight, falling with the G10 pack against the USD. NZD/USD stands 0.8% weaker at 0.7740.
The market mostly ignored local data released yesterday. NZ’s current account deficit grew slightly to 2.6% of GDP in Q3, from 2.5% in Q2. This was better than forecaster anticipated, with the market picking a rise to 2.9%.
We note that the medium-term story remains one of continued deterioration, as falling commodity prices feed through.
After the FOMC hurdle is cleared this morning, we have NZ’s GDP report card for Q3, which we expect to post a very healthy 0.9% q/q gain (the market picks +0.7%).
Notwithstanding major surprises from the FOMC, we pick a 0.7650 – 0.7800 range for NZD/USD today.
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Majors
Risk appetite has perked up a little this morning, ahead of the Fed’s policy statement at 8am NZT. The mild improvement in sentiment likely stems from a decent bounce in oil prices. The USD has clawed back some of the losses it saw earlier in the week.
WTI crude oil prices are up by 3.5% (with a similar rise in Brent), having risen sharply over the past few hours amid speculation that prices have fallen too far. There has been little news to have inspired such a move, leaving analysts nervous that this bounce might be short-lived.
Whatever the reason, the gain in prices overnight has helped energy stocks rally further. Gains in that sector was enough to offset weakness elsewhere, allowing the Euro Stoxx 60 to close 0.1% higher. The S&P 500 is currently up 1.1%.
The USD has generally gained across the majors, with some investors likely positioning themselves for an upbeat tone from the Fed today. Some sharp moves lower among the majors helped. For example, AUD snapped through strong technical support at 0.8200 yesterday afternoon on no news or data. That led to a 50pt collapse from which AUD/USD has struggled to recover. It sits at 0.8180 this morning.
The EUR has also suffered, posting a 0.9% loss, though this can be attributed to an interview Benoit Couere, an ECB Board member, gave to the WSJ. It contained some of the strongest hints to date that the Bank has already decided to ease policy further, and has moved on to designing that policy. Couere noted a “broad consensus” among policymakers of a “need to do more”, with purchases of government bonds “the baseline option”. We remain short EUR/USD on the expectation that policy will be eased in Q1 2015.
For completeness, we note that the Russian ruble has strengthened by 12% overnight, with central bank intervention evident. Other major emerging-market currencies have also gained against the USD, albeit much more modestly.
After the FOMC today, we expect liquidity in markets to deteriorate materially, with investors having cleared the last big event risk before Christmas. On the data front tonight, we will be watching Germany’s IFO survey, UK retail sales, and the Philly Fed survey.
Other news:
*BoE Minutes reveal unchanged 7-2 vote for rates on hold.
*US core CPI +1.7% y/y vs +1.8% exp.
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