By Stuart Talman, XE currency strategist
Improving sentiment throughout Thursday's sessions has brought respite for US equity markets that have encountered vigorous selling throughout September, the S&P500 and Nasdaq on track for their worst monthly performance since December.
Despite September's struggles for US stocks, the risk sensitive New Zealand and Australian dollars have held up reasonably well, the Kiwi trading flat for the month whilst the Aussie declines around 1% having logged fresh year-to-date lows yesterday.
Amongst the G10 cohort, the pound, euro and Swiss franc are the three laggards, shedding between 3% - 4% through September. Poor eurozone macro data flow in addition to the ECB signalling an imminent end to its tightening cycle have been the catalysts for EUR underperformance. Surprise on-hold decisions at last week's BoE and SNB monetary policy meetings adding to GBP and CHF headwinds.
Briefly dropping below 59 US cents, early morning Thursday, the New Zealand dollar looked vulnerable to further downside, a potential re-test of the year-to-date low near 0.5860, looming.
However, NZD buyers were present throughout all of Thursday's sessions, NZDUSD climbing steadily to reverse all of the previous two days losses, marking intraday highs a few pips through 0.5970.
So, what prompted Thursday's risk rally?
Whilst there has been a pullback in global bond yields at the front end of the curve, longer dated treasuries continued to sell-off, pushing yields higher and relatively so in the UK and Europe - gilt and bund yields both up over 2.5% whilst the yield on the benchmark US 10-year is pretty much flat.
Domestically, the Kiwi received a boost from a stronger-than-expected business confidence reading, the ANZ Business Outlook index rising from -3.7 in August to 1.5, turning positive for the first time since May 2021, attributed in part to the recent rebound in activity indicators (PMIs, retail sales) and modest tempering of inflation pressures. Nevertheless, the growth outlook for not only the Kiwi economy but other developed economies across the globe looks shaky.
The ANZ business outlook survey kickstarted the Kiwi's ascent with gains accelerating through the Asian afternoon and into the London morning.
Following a ~30pip retracement heading into US trade, the Kiwi and other risk sensitive assets caught a bid through the first half of the US session. With no clear catalyst presenting, risk on flows are likely the result of month and quarter end rebalancing.
In other news via Thursday's economic releases, retail sales across the Tasman were weaker than expected (0.2% vs 0.3%, expected) whilst CPI for Germany also printed below consensus, falling from 4.5% to 4.3%. Eurozone economic sentiment also released, falling to its lowest level since November 2020.
The Kiwi fell around a third of a percent versus the G10 leading Aussie dollar, NZDAUD failing to breakout above stout 0.9320 resistance. Against the EUR, the Kiwi continues its impressive rebound having logged 14 intraday gains through September versus a half dozen down day, lifting NZDEUR to its highest point in 2.5 months. Marking Thursday's high a pip or so through 0.5660, the pair attempts to break through major resistance located around current levels.
Looking to the day ahead, the week's headline data point, the US core personal consumption expenditures index is released. Core PCE, the Fed's preferred inflation gauge is projected to fall from 4.2% to 3.9%.
A busy Friday also serves up inflation reports for the eurozone and Tokyo, ANZ -Roy Morgan consumer confidence for domestic households, UK GDP, German retail sales and Uni of Michigan consumer confidence.
Along with the busy economic calendar, quarter end flows are likely to induce lively price action to round out the week, month and quarter.
Daily exchange rates
Select chart tabs
Stuart Talman is Director of Sales at XE. You can contact him here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.