The USD was fairly solid overnight, while “commodity-linked” currencies underperformed.
It was a calmer night for markets as they appear to be adapting to the new Yuan fixing regime, and trans-Atlantic data delivery failed to provide any significant surprises.
However commodity prices have continued to subside.
The CRB global commodity index is down 0.7%. The WTI oil spot price sits 2.8% lower at present, its lowest level since Feb 2009. This has contributed to the “oil-linked” NOK and CAD being the worst performers over the past 24-hours.
The Swedish Kroner was the only major currency to strengthen versus the USD overnight. The USD/SEK gapped lower last evening after data showed underlying Swedish July CPI at 0.9%y/y versus an expectation of 0.6%. The SEK has strengthened about 1.3% versus the USD to trade at 8.4850 this morning.
The USD index has traded a relatively tight range, but pushed up to intra-night highs above 96.80 after a solid US July retail sales report. However, it has subsequently drifted off to trade at 96.50.
The AUD sits a little lower this morning, in the backdrop of the broad-based declines in commodity prices. The AUD, along with most of its peers, experienced a bout of volatility around the time of the USD/CNY fix early yesterday afternoon. However, in a sign the market appears to be getting used to the new regime, most currencies rapidly returned to trade at previous levels. The AUD/USD sits at 0.7360 this morning.
The NZD/USD has also softened over the past 24-hours. Yesterday afternoon, the NZ dairy sector was again in the spotlight. Credit rating agency, S&P, downgrade the Fonterra co-op from A/stable to A/watch negative.
Fonterra responded with its own statement saying that current global prices are “unsustainably low” (we would concur) and that it is confident in the long-term fundamentals for the dairy sector. The enduring question is how long it will take for the turnaround in dairy prices to occur. In the meantime, Fonterra has also announced it will further reduce volumes available at GDT dairy auctions. This could provide some relative support to prices at next week’s auction.
The NZD/USD sits at 0.6560 this morning, well within the 0.6480-0.6740 range it has traded for the past month. Ultimately we see this range being broken to the downside, with NZD/USD at 0.6200 by year-end.
Today, the focus will be on domestic retail sales data. We are looking for a modest 0.2% increase (consensus 0.5%) for Q2. It might not sound like much. But following on the massive 2.7% expansion of Q1 any growth at all would be commendable. Our forecast implies annual growth at a swift 6.5%. However, it’s possible the market could still respond negatively to a below-consensus outcome.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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