By Mike Burrowes
The NZD was the best performing currency over the past 24 hours as risk sentiment recovered strongly overnight. NZD/USD surged from 0.8200 at the beginning of the evening to 0.8320 currently. Over the past 24 hours we have noted decent demand from Asian sovereign names and local exporters.
Further supporting the move higher in the NZD and AUD over the past 24 hours has been a strengthening Chinese Yuan. Over the past 2 days, the People’s Bank of China has shifted the mid-point of the Yuan range up by 0.6% to 6.3945. This is the largest move since February 2008 and has sparked speculation the PBOC will continue to allow the Yuan to strengthen further.
The NZD charged higher on the crosses overnight, with the trade-weighted index up 1.6% to 71.90. NZD/EUR jumped back from 0.5750 to 0.5840 currently. The weakness in NZD/GBP was short lived, trading back to 0.5120 from 0.5030. The comments from the Swiss National Bank overnight to weaken the CHF (see below) saw NZD/CHF surge over 7.5% to 0.6350 currently.
After a sharp decline in NZD/AUD to around 0.7900 on Thursday morning, the cross has recovered over the past 24 hours to 0.8020 currently. The move higher yesterday was supported by weaker-than-expected Australian employment data for July (-0.1k vs 10k expected). In response, AUD/USD shed ¾ cents to 1.0200.
The data saw the OIS market move to price 142bps of cuts from the RBA over the next 12 months, from 130bps of cuts yesterday. For the next RBA meeting, the OIS market is pricing 44bps of cuts. For now, our NAB colleagues suggest expectations of rate cuts are well overdone. Overnight, the improvement in risk sentiment sent AUD/USD back to around 1.0300
While not gaining much attention yesterday, data released in NZ was encouraging. At the very least the data suggests the NZ economy has a decent amount of momentum to carry it through some short term nervousness in world financial markets. The NZ business PMI dropped 1.1pts to 53.2 for July.
Despite the drop, the outturn still represents another solid level of expansion. The ANZ Roy Morgan index of consumer confidence rose in August to 113.3, reversing the slight dip to 109.3 it registered during July.
With no data out in either NZ or Australia today, expect NZD/USD to takes its cues from offshore. Initial support is seen around 0.8240 and resistance around 0.8380.
It was a game of two halves overnight, with the USD strengthening in the early evening, before fully reversing during the early hours this morning. Overall the USD index fell from 74.80 to 74.65.
Risk appetite recovered sharply early this morning as the S&P500 index surged 4.1% and the Euro Stoxx 50 index gained 2.9% for the session. The CRB index (broad index of global commodity prices) jumped 1.8% higher.
The rebound in risk appetite saw Gold drop to USD1744 per ounce, after reaching a record high above USD1810 per ounce yesterday morning.
Trading on the EUR was volatile overnight, during the evening EUR/USD dropped from 1.4250 down to below 1.4120 after shares in the major Italian banks were suspended from trading. Other major currencies were dragged lower, with GBP/USD falling from 1.6180 down to 1.6120.
Sentiment reversed early this morning after better-than-expected US initial jobless claims for the week ended August 6 (395k vs 405k expected). The data helped to ease fears about an impending US recession. EUR/USD and GBP/USD recovered back to 1.4240 and 1.6230 respectively.
The CHF plunged around 5% against the USD and EUR overnight. The move was caused by comments from the Swiss National Bank’s Vice Chairman Jordan, noting in an interview it could ease monetary policy further or even peg the CHF to the EUR. It seems the most likely measure will be negative interest rates, which will help to force out speculative investors.
While the comments caught the market off-guard, it’s hard to see the CHF weakening significantly until sentiment towards the US and Europe stabilises.
The risk on theme in markets overnight saw USD/JPY strengthen from around 76.50 to 77.00 currently. Despite the moves overnight, Finance Minister Noda upped his rhetoric, noting he “is keeping an extremely close watch on currency moves, while working closely with the global community”.
Looking to the night ahead, expect trading to remain volatile as the market frets about a slowdown in the US economy and the European debt crisis. On the data front, we have Eurozone industrial production, US retail sales and University of Michigan consumer sentiment.
Kymberly Martin is part of the BNZ research team.