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Good data releases in US and Europe help risk markets stage a rally; Fonterra dairy auction prices hold up well

Good data releases in US and Europe help risk markets stage a rally; Fonterra dairy auction prices hold up well

By Kymberly Martin

NZD

The NZD was the strongest performing major currency over the past 24-hours as global risk sentiment improved. It rose 1.70% relative the USD.

Overnight, global risk appetite improved as US and European data beat expectations. Our risk appetite indicator (scale 0-100%) rose from 39% to 42%.

In the early hours of this morning, the latest Fonterra dairy price auction also showed a solid result. Average (TWI) prices declined a modest 1.6%. In the past few months dairy prices have shown remarkable resilience, bobbing around at an elevated level. This morning’s result very much fits with this theme.

The NZD/USD was on a steady ascent for most of the night rising from around 0.7600 last evening to 0.7700 currently. The NZD also made solid gains against both the EUR and GBP rising to 0.5880 and 0.4910 respectively, relative to the European currencies.

The NZD/AUD currently trades at a similar level to yesterday morning, just above 0.7640, despite a fair amount of volatility over the past 24-hours. Today, the key data releases for the cross will be the AU Westpac leading index and the NZ current account and credit card spending data. Both currencies should be well supported today, if positive global risk sentiment feeds through to strong Asian equity market performance.

Majors

Global risk sentiment improved overnight, on the back of generally positive data releases on both side of the Atlantic. The USD was broadly weaker as “safe haven” demand diminished. The best performing currencies over the past 24-hours were the risk sensitive NZD and AUD.

The USD lost ground in two large steps overnight. First, it fell after the German IFO survey of the business climate unexpectedly rose to107.2 (106.0 expected). The current assessment of conditions remained stable, while the forward looking “expectations” component rose from 97.3 to 98.4. This suggests that the core of European business may be showing resilience to the financial turmoil. In addition, Spain completed a successful bill auction overnight.

Later, US housing data also surprised to the upside. Housing starts grew 9.3%m/m in November (1.1% expected) and building permits were at the highest level since March. As “safe haven” demand for the USD faded, the USD index declined 0.70% over the past 24-hours. It currently trades at 79.80.

By contrast, the EUR/USD stepped higher last night after the data releases. It moved up from around 1.3000, to as high as 1.3130 in the early hours of this morning. It gave back some of those gains to trade around 1.3080 currently.

European equities were also on a steady ascent from the open, closing up 2.70%, led by the financials sector. The S&P500 opened up strongly and is currently up 2.80%. Commodities also showed a strong rally. The WTI oil price is up 3.50% and the CRB broad global commodity index is up 1.80%.

The greatest beneficiaries of the improvement in risk sentiment were the AUD and NZD. Earlier, the AUD/USD had shown little reaction to the release of the Dec 6 RBA minutes (see Fixed Interest). Overnight, the AUD/USD moved up from around 0.9930 to 1.0080.

The GBP was also dragged up on the coat-tails of the stronger EUR. The UK CBI retail report also showed that sales volumes rose in December, though not by as much as is often achieved in the pre-Christmas period. The data came in at 9 relative to an expectation of -12. The GBP/USD moved up from1.5520 to 1.5660 overnight.

In the evening ahead we get the release of the Bank of England MPC minutes, and Eurozone consumer confidence data. Tonight, we get more insights into the US housing sector with the release of US mortgage and existing homes sales data.

Kymberly Martin is part of the BNZ research team. 

All its research is available here.

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