Kiwi currency ends its unsuccessful flirtation with the notion of parity with the AUD. China data doesn't excite but Greece might

By Kymberly Martin

NZ Dollar

The NZD/USD has been one of the weakest performing currencies over the past 24-hours.

It trades around 0.7690 this morning.

The NZD/USD had a brief spurt higher yesterday afternoon after better-than-expected China data releases.

However a downtrend became entrenched overnight which was unable to be curtailed by the latest GDT dairy auction in the early hours of this morning.

Average dairy prices were shown to be up 1% from the previous event (but still down 46% on a year ago). We continue to see downside risk to Fonterra’s guidance of NZ$4.70 for the 2014/2015 season, and will likely revise down our own forecasts.

At 0.7680 this morning the NZD/USD is toward the lower-end of its trading range of the past few months.

There is decent support seen around these levels ahead of the December lows just above 0.7600. Resistance is eyed at 0.7810.

The NZD was notably weaker on the crosses also overnight. The NZD/EUR has returned to trade at 0.6650 ahead of the key event of the week, tomorrow night’s ECB meeting.

The NZD/AUD has slipped to trade at 0.9400 currently.

After its recent unsuccessful flirtation with notions of parity, it is now closer to our model-derived range of fundamental ‘fair-value’ which currently sits between 0.9000-0.9200.

It is possible that a low-side NZ CPI reading that we expect today gives the cross a further nudge in this direction. We expect a -0.1%q/q reading for Q4 CPI (consensus 0.0%).

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Majors

The CHF has been the strongest performing currency over the past 24-hours while the NZD and CAD have been the weakest.

Yesterday afternoon’s China data releases were mostly above expectation (Dec I.P. 7.9%y/y vs. 7.4% expected; Q4 GDP 7.3%y/y vs. 7.2% expected). This caused a brief flurry of excitement in the AUD. But a spike higher proved short-lived and the AUD/USD has returned to trade near the lower-end of its range of the past 24-hours. It sits at 0.8180 currently.

Overnight, the key data release was the Jan German ZEW survey. Current conditions (22.4 vs. 13.0 exp.) and expectations (48.4 vs. 40 exp.) both rose. Recent woes at the periphery (read Greece) do not appear to be threatening sentiment in core Europe, yet. But there is still potential for this to change post Sunday’s Greek General Election. While the Euro Stoxx50 managed to close up 0.75%, the EUR/USD was unable to hold onto its gains. After the data release it pushed above 1.1610 but later subsided to 1.5560. All eyes will now be on tomorrow night’s ECB meeting.

The path of the GBP diverged from that of the EUR overnight. It has strengthened relative to the USD, along with the CHF. The GBP/USD now trades at 1.5160 ahead of the release of Bank of England Minutes tonight. At present the market prices only about a 50% chance the BoE raises its cash rate by this time next year.

The CHF has risen around 0.5% versus the USD over the past 24-hours as it struggles to find its natural level after its historic ascent last week. The USD/CHF trades at 0.8750 at present.

Today the Bank of Japan will release its monetary policy statement. Tonight, US housing starts data will be released and the Bank of Canada will announce rates. It is not expected to change its cash rate from its current level (1.0%).

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