Santa Claus has come early for NZ exporters with USD exposure, as on Friday the NZD fell for the third consecutive day by more than 1%. It closed the week around 0.6960, making it the worst performing major currency we monitor for the day (-1.1%) and the week ( 2.4%).
There was certainly no NZ specific news to drive the weakness. Indeed, traders are increasingly pricing in more chance of tighter NZ monetary policy in the second half of next year (see Interest Rates) and data later this week could show the economy growing as fast as a 4% annualised pace. I blame the AUD, with investors nervous ahead of today’s fiscal update that might trigger a sovereign rating downgrade from its coveted AAA. The NZD broadly followed the AUD’s fall on Friday, with AUD/USD closing the week down 0.7% to just above the 0.73 mark.
The NZD broke through July’s support level of 0.6950 and reached a low of 0.6931. Our short-term fair value model estimate has been tracking in a 0.72-0.73 range of late. Our risk appetite index would have to fall from its current high level of 69% to a below-average 46% to justify the current level of the NZD. The next area of support is 0.6800 ahead of 0.6675.
USD indices were slightly softer on Friday. The USD was having a good run, but selling pressure eventually emerged. Reports coming through that China had seized a US underwater drone in the South China Sea had some impact across markets, and the USD ended the session on a softer note, as did the S&P500 index.
Of the majors, on Friday GBP performed the best, up 0.6%, followed by the EUR +0.4% and the yen +0.2%. For the week, however, the USD was the strongest of the majors, holding on to most of its gains in the aftermath of Thursday’s more hawkish than expected Fed projection for rates next year.
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