The USD made modest gains against nearly all major currencies overnight, despite a soft manufacturing report.
Plunging oil prices led commodity currencies lower, though by less than we would have expected. Curiously, NZD seems to have been spared the short shrift.
The closely-watched US ISM manufacturing index printed below expectations, but remains above its recent trend.
The details of the report were mixed, but the miss in the headline would normally have driven at least a modest USD negative reaction. But the market seems inclined to ignore weakness in US data, ahead of the employment reports.
Investors also had to contend with another collapse in global commodity prices, led by oil. Brent crude prices are down by 5.0% to below $50 for the first time since January.
The downward revision in Caixin’s China PMI reading for July, to 47.8, certainly contributed to the commodity slump, reducing hopes that rising demand might help offset the largely supply-driven trend decline in prices.
On the supply side, oil prices were hurt by news that Iran intends to raise its output by nearly a fifth within a week of sanctions being lifted.
Unsurprisingly, NOK is by far the worst performing G10 currency this morning. But its 0.8% decline is surprisingly modest.
CAD and AUD, similarly exposed to hard commodity prices, are both 0.5% weaker for the day.
NZD would normally have been implicated by association, but instead stands as one of the best performing major currencies.
NZD/USD has effectively hugged the 0.66 level, in an extremely tight trading range.
Even if NZD was not dragged lower by pure peer pressure, we might have expected investors to factor in the growing risks to tonight’s dairy auction.
The correlation between oil and dairy prices is strong, and we imagine the drop in the former overnight will add to the already-negative bias we had for the auction.
Today, we expect the ANZ commodity price index to reflect recent dairy auction falls, though the headline drop likely won’t in itself create fresh NZD angst.
There is plenty of action across the ditch to keep local investors interested, including the trade balance, retail sales, and the RBA policy decision.
A relatively quiet European and US session will mean the spotlight falls on US factory orders.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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