NZD direction will be set by international risk sentiment and reaction to US data releases, rather than local data

By Kymberly Martin

Most currencies traded relatively tight ranges in the run-up to the weekend. The CAD experienced some volatility around data releases.

In the absence of major data releases or publically-revealed developments in Greek negotiations, markets were relatively subdued into weekend.

The S&P500 closed down 0.5% and commodities, including oil, were generally a bit lower. Still, our global risk appetite index remains at a relatively healthy 58% despite lingering Greek concerns.

Fed speakers were in the spotlight on Friday night. Williams said he continues to be in “wait and see” mode until he is more confidence that inflation will be moving back to 2%. He stated:  “My own forecast would be having us raise rates two times this year … but that would depend on the data”. This is closely aligned to the Fed’s median projections for this year.

Mester said she was probably a little more optimistic about economic developments relative to some. She also saw rates rising this year but was a bit more ambivalent, saying it’s “hard to determine at this point how many rates increases” will happen in 2015.

The USD index closed the week just above 94.00, toward the lower end of its range year-to-date. We do not believe the strong USD trend is over, but we will likely need to see definitive evidence of imminent Fed action, in order to support the next sustained up-leg.

The CAD was one of the more volatile currencies on Friday night, after Canadian data releases. The currency dipped following weak retail sales data, but later clawed its way back to end the week at 1.2270.

Both the NZD/USD and AUD/USD slipped a little into weekend. The NZD/USD ended the week just above 0.6900, a level where some near-term support appears to be building. However, resistance to a bounce is eyed at 0.7100.

There is a solid handful of NZ data releases due this week, though none likely to be crucial for the NZD. Rather, the fate of the NZD/USD will likely be determined by (i) risk sentiment as broadly directed by developments in the Greek situation (ii) the reaction of the USD to a heavy smattering of US data releases.

It was interesting to note that CFTC speculative positioning data, released on Friday, showed net short NZD positions had reduced from 11.8k to 9.2k. This likely reflected profit-taking in the wake of the RBNZ’s 25bps rate cut. We continue to expect a further cut at the RBNZ’s July 23 meeting, though this outcome is now 75% priced by the market.

Kymberly Martin is on the BNZ Research team. All its research is available here.