By Mike Jones
NZD
It was a bit of a roller coaster ride in the NZD/USD overnight. The currency spent the night pinging between 0.8160 and 0.8200, as risk appetite and global equity market sentiment chopped and changed.
Yesterday’s fall in Australian business confidence helped reinforce the base of support the NZD/AUD has established around 0.7850.
The NAB October Business Survey fell to a three-year low of -5 from -3. Today’s NZ retail sales figures and Australian wage data will be important tests of our view the NZD/AUD is susceptible to further near-term depreciation.
Along with the gains in the NZD/AUD, a late flourish in stock markets and commodity prices (see Majors) helped the NZD/USD finish the night near the top of its overnight 0.8160-0.8200 range.
Our risk appetite index (long-run average of 50%) now sits at 70%, suggesting the global backdrop remains supportive of the NZD.
The domestic backdrop, in contrast, has been a net negative for the currency of late. And this morning’s (10:45am) quarterly retail sales figures will determine whether this continues.
We expect a 0.1% fall in Q3 retail sales volumes. The market’s median pick is for a steady rise of 0.4%. A flat-to-negative result around our expectations would likely encourage the markets to up the odds of a December OCR cut, presently scored at around 25%.
This could see the NZD/USD revisit its post-HLFS lows around 0.8130. However, the brighter global backdrop means we doubt dips below 0.8080 would be sustained.
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Majors
It’s been a night of skittish price action in tight ranges. Shifting European sentiment has provoked plenty of intra-day volatility in stock markets and currencies.
However, there has been little game-changing news for markets and the USD index finished the night close to where it started around 81.50.
The EUR/USD slumped to 2-month lows below 1.2670 and US stock futures slipped into the red following the conclusion of the Eurogroup meeting.
Finance ministers agreed to Greece’s two year extension, but held back the €31b aid tranche until they can agree on the path for Greece’s debt sustainability. This left the market wondering where the cash for Greece’s Friday €5b debt repayment was going to come from.
Of course, none of this should have been news, so perhaps it was another sign of ailing momentum in the German economy that scuttled EUR sentiment. On this score, the timely ZEW survey undershot analysts’ already dour expectations (5.4 vs. 8.0 expected).
Whatever the case, the EUR didn’t hang around its lows for long. A Greek short-term bill auction raised enough cash to keep the country solvent for a bit longer, and rumours flew around of a possible €44b lump sum payment to Greece.
A brutal short covering rally soon pitched the EUR/USD back to 1.2700 and equity markets managed to claw their way back into positive territory. After earlier sliding to an overnight low of 1.0400, the AUD/USD finished the night closer to 1.0430.
Looking ahead, tomorrow morning’s FOMC minutes should provide little excitement for markets. However, any comments/suggestions around the Fed’s likely response to the end of ‘Operation Twist’ could be important for USD sentiment.
In the UK, tonight’s BoE inflation report will hopefully shed light on whether the MPC are likely to resume quantitative easing or keep pinning their hopes on the Funding for Lending scheme. Hints the BoE are done with QE for now would likely shore up GBP/USD support around the 200 d.m.a (at 1.5850).
Other News:
* UK October CPI inflation rises to 2.7%y/y (2.4% expected), possibly constraining the ability of the BoE to re-stimulate the UK economy.
Event Calendar:
14 November: NZ quarterly retail sales; AU consumer confidence; AU wages; UK ILO unemployment; UK BoE inflation report; EU Italian bond auction; US retail sales; US FOMC minutes 15 November: NZ job ads; NZ manufacturing PMI; NZ ANZ consumer confidence; AU inflation expectations; EU Eurozone GDP; UK retail sales; EU Eurozone CPI; US Empire manufacturing; US CPI; US Philadelphia Fed index; 16 November: US industrial production.
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