Sentiment broadly positive after solid Chinese, German and US data releases

By Kimberly Martin

The NZD was amongst the strongest performers over the past 24-hours. It began a steady ascent after solid Chinese data boosted sentiment yesterday afternoon.

It touched above 0.8030 last night, before drifting off to 0.8000. This has taken the NZD/USD above the 0.7870-0.7980 range that has contained the currency for the past week.

Earlier in the day, NZ data releases provided little to stir the NZD. The NZIER quarterly survey of business opinion came across as reasonable enough. However, scratching beneath the surface it was not quite so convincing. This became all the more obvious with the evidence of increasing reliance on the province of Canterbury, and its rebuild, to drive the nation’s growth.

NZ electronic card transactions data eased a touch in December by -0.2% in total. This was in line with our thinking, as the value of transactions are still unwinding from the inflated Rugby World Cup level. However, for Q4 as a whole, thanks to the RWC boost, retail transactions were up 1.2% on Q3.

Global drivers proved to have the greater influence on the NZD, however. Solid Chinese data was later complimented by better-than-expected data outturns on both sides of the Atlantic (see Majors). This boosted equity markets and general sentiment. The NZD/USD broke previous resistance at 0.7980 to trade around 0.8000 currently.

The NZD also made some ground against the AUD in the early hours of this morning to trade around 0.7700 currently. Both currencies had begun their rise after the Chinese data dismissed fears of an imminent sharp slowdown in this critical economy.

Relative to the EUR, NZD trading was fairly volatile overnight. The EUR lost ground relative to the USD early this morning after strong US Empire Manufacturing data. This also lit a fire under the NZD/EUR that moved up from around 0.6250 to 0.6280 currently.

Early this morning, the latest Fonterra milk auction showed more signs of stabilisation. The 1.5% increase in average prices recovers most of the ground lost in the previous two auctions. It also came despite the headwind of a generally stronger USD, since the previous auction. We see this as a solid result.

There are no NZ data releases today. The cross may be impacted by the 12.30pm release of the Australian Westpac consumer confidence indicator. Near-term NZD/USD resistance is seen at the overnight high around 0.8030. Support remains at 0.7920.

Majors

Sentiment in markets was broadly positive over the past 24-hours, after solid Chinese, German and US data releases. As risk appetite improved, the USD weakened relative to all its peers, except the JPY. Equity markets posted positive returns in Europe (Euro Stoxx +1.50%) and the US (S&P500 currently +0.70%).

Chinese data (industrial production, GDP and retail sales) were modestly above expectation, quelling fears of a harsh slowdown in one of the key remaining engines of global growth. Annual GDP growth was, however, the weakest in two and a half years, continuing the steady decline that has been in train for the past year. We maintain our forecast for a gradual decline to 8% for 2012 and 2013. The data however helped set the AUD and NZD on a steady upward path yesterday afternoon. The AUD touched 1.0450 late last night, before drifting off to 1.0380 currently.

Sentiment was further boosted by a stronger-then-expected German ZEW (economists) survey. Importantly, the forward looking economic sentiment components jumped from -53.8 to -21.6 (-49.4 expected). This helped underpin the EUR/USD. It rose above 1.2800 early this morning. The positive data surprises then continued on the other side of the Atlantic (the Empire Manufacturing index rose to 13.48 vs. 11.00 expected). This boosted the USD, with the EUR/USD falling back to 1.2740 currently.

Conversely the USD index traded down from 81.400 to 80.80 early this morning, before rebounding to 81.10 currently.

The Bank of Canada left rates unchanged at 1% as expected. In comments, the central bank referred to the recovery being “more modest than previously envisaged, largely due to the external environment”. The market’s response was fairly muted. The CAD gained 0.30% relative to the USD over the past 24-hours.

This evening, UK labour market data is released, along with US PPI and industrial production data. US mortgage applications and NAHB housing market data should shed light on the moribund US housing sector. Near-term support on the USD index is eyed at 80.80, with resistance remaining at 81.80.

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