Strong US data, despite Q1 GDP adjustment, brings USD upswing. Markets not panicing over Greece, undermining Greek negotiators

By Raiko Shareef

New Zealand returns from a long weekend to find that NZD has been one of the worst performers since Friday morning.

Elsewhere, the USD remains ascendant, as the US economic picture continues to improve.

NZD/USD traded lower with nary a look back, after it sheared through the previous 2015 low (0.7177) on Thursday night.

After what looked to be a technically-motivated sell-off, NZD’s underperformance was somewhat vindicated by a sharp paring in NZ business confidence.

We are sceptical that the full extent of the decline is justified – the broader fundamental picture has changed little. But with a broader USD upswing in motion, and now-strong technical resistance just below 0.72, we would not play against current momentum.

Offshore, the market continues to return to its love affair with the USD, amid a strong run of US data.

Notably, the widely-expected revision to US Q1 GDP on Friday was not as bad as feared. This provided a steady platform for the punchy USD gains overnight. The price action centred around the ISM and construction spending reports. In the former, the headline ISM index beat expectations, while the important new orders sub-index rose to its best level in 2015. Additionally, the prices paid sub-index hit its highest reading since October.

Separately, construction spending roundly beat the month’s expectations, but March’s reading was also revised higher from -0.6% m/m to 0.5%.

As a result, the USD starts the week on a strong foot, with USD/JPY falling just short of breaking ¥125. The Bloomberg Dollar Spot Index is up 0.8% over Friday and Monday. That would have been a much larger gain, had it not been for the surprisingly restrained EUR, which has barely changed from Friday morning’s level.

EUR’s outperformance is a puzzle, in the face of Friday’s deadline for Greece to make a US$334m payment to the IMF. There is little sign as yet that a deal is imminent, but that is exactly what the market is positioned for. Some commentators note that the market’s rather sanguine approach detracts from Greece’s negotiating hand. It might have hoped for a better deal from its creditors had markets started to exhibit signs of panic.

Clearly, this deadlock will be front of mind for markets this week. EUR likely holds the key for any significant USD moves, ahead of the monthly US payrolls report on Friday. There is a heavy calendar of data due both locally and offshore before then.

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Raiko Shareef is on the BNZ Research team. All its research is available here.