By Mike Burrrowes
The NZD has gained 2.5% on the USD over the past 24-hours. It gapped higher after the RBNZ announcement yesterday morning and then began a steady march higher in the afternoon after the EU summit statements. The NZD/USD currently trades around 0.8200.
The RBNZ delivered its expected straight bat in announcing yesterday that the cash rate would remain unchanged at 2.5%. Nonetheless, it maintained a clear tightening bias saying “gradually increasing pressure on domestic resources will require future OCR increases”. In this regard, the RBNZ stands almost alone amongst developed-world central banks. It is a stance that we feel is very much justified. And we note that the word is “increases”, plural. The NZD moved higher on the announcement to a resistance level just above 0.8000.
The NZD then began a straight-line ascent yesterday afternoon, after the eventual release of comments from the EU summit (see below). This bolstered global risk appetite, with the NZD a key beneficiary. This saw the NZD/USD move confidently up to 0.8200 this morning.
The AUD was the currency of favour yesterday, resulting in the NZD/AUD declining to 0.7650 this morning. The NZD fared better relative to the GBP, where it made steady headway overnight from 0.5020 to 0.5090.
Trading relative to the EUR was a little choppier, although the NZD/EUR did eke out a small gain, to trade at 0.5770 this morning.
There are no NZ data releases today. Global risk appetite will continue to be the driver of the currency today, although some consolidation can be expected after yesterday’s large move higher.
Risk appetite has roared away after announcements from the EU summit yesterday. In this backdrop the USD underperformed all currencies. The AUD and NZD were amongst the strongest performers.
Yesterday afternoon, news from the EU summit began to trickle out. While announcements raise as many questions as they answer, the market was relieved to have something concrete on paper. Greek bonds are to be written down by 50%. The EFSF is to be expanded and levered up to €1tn. Italy and Spain pledged to cut their debt levels. French Prime Minister Sarkozy says he will welcome any investments from China and will speak with Chinese officials today.
As a result, our risk appetite indicator (scale 0-100%) has moved up from 34% to 41%. Equity markets have surged higher. The Euro Stoxx 50 rose 6% (financials sector 10.8%) and the S&P500 is currently up 3.5%. Commodity prices were up across the board, with the CRB global commodity index up 2.6%.
In this environment the USD was abandoned as a “safe haven”. In addition, an in-line release of US Q3 GDP showed that growth accelerated to 2.5% from 1.3% previously. This served to further buoy risk appetite and disinterest in the USD. The USD index traded down overnight from around 76.00 to 74.80.
Conversely, the EUR was on a straight line ascent overnight. The positive sentiment was only consolidated by the release of EU confidence indicators that were in line with, or slightly above expectation. The EUR/USD rose overnight from 1.3950 to 1.4210 currently.
The GBP also came along for the ride. It was also underpinned by CBI retailing data (-11 vs. -16 expected) that showed downward momentum dissipating. The GBP/USD rose from 1.6000 to 1.6120 currently.
The JPY was the weakest performer over the past 24-hours (aside from the USD), shunned as risk appetite took flight. The Bank of Japan also kept rates unchanged, as expected, yesterday. It raised its asset purchase program. Currency intervention does not appear imminent, as Japanese officials noted that the JPY may continue to rise for the time being. However, an improvement in global risk appetite may do some of the BoJ’s work for it, as demand for the “safe haven” JPY diminishes. The USD/JPY declined from 76.00 to 75.90.
The AUD/USD was the strongest performer, gaining 3.2% on the USD over the past 24-hours. The general improvement in risk appetite saw the AUD/USD march straight higher overnight from 1.0400 to 1.07030, back to levels seen in early September.
After yesterday’s excitement things are quieter on the data front today. Tonight the US University of Michigan confidence survey is released.
Mike Burrowes is part of the BNZ research team.