By Mike Jones
NZD
After climbing to a fresh 5-month high above 0.8400 last night, the NZD/USD has subsequently crashed back to Earth. The currency currently trades around 0.8340, pretty close to where it was 24-hours prior.
Markets had the wind at their back through the first half of last night. Solid US corporate earnings results, and hopes another Greek rescue deal is imminent kept equity markets and risk appetite on a solid footing.
The “risk-sensitive” NZD/USD bathed in the more upbeat sentiment, climbing steadily to a 5-month high above 0.7400.
However, the lofty highs in the NZD didn’t last for long. A number of European headwinds cooled investors’ appetite for risk. Not only did reports pour cold water on hopes the ECB may play a hand in Greek debt restructuring, but rumours swirled Italian Q4 GDP may print negative. Global equity markets dipped into the red, earlier commodity price gains were scuttled, and “safe-haven” demand for the USD returned. Before long, the NZD/USD had been knocked back to around 0.8340.
This week’s local data is all about the labour market. Following Tuesday’s solid QES earnings figures, attention now turns to this morning’s Household Labour Force survey. While its quarterly moves remain prone to volatility, we’re expecting its trends to remain mildly encouraging. As for the headline numbers, we’re expecting a 0.4%q/q (1.9% y/y) gain in employment and a slight moderation in the unemployment rate, to 6.4%. The market, and the RBNZ, is looking for 6.5%.
Squinting your eyes through the recent volatility, the NZD/USD has spent the past week or so simply consolidating in a 0.8300-0.8400 range. As we noted on Tuesday, NZD fundamentals have improved, but the extent of recent NZD/USD gains have left the currency a little overstretched. As a result, the NZD/USD is facing increased resistance on pushes to the upside. We suspect we’ll need to see today’s unemployment figures print south of 6.3% for a convincing break of 0.8400 resistance.
Majors
It’s been a night of whippy range-trading in the major currencies. The USD index ended the night more or less where it started around 78.50.
The USD spent the first part of the night on the back foot, as “risk-sensitive” currencies remained in vogue. Hopes a Greek rescue plan might be just around the corner were bolstered by reports China may invest US$100b in rescue facilities. More dovish comments from Fed Chairman Bernanke, and a slew of solid US corporate earnings results also underpinned demand for ‘”risky assets”.
Global equity markets briefly climbed to 6-month highs and oil prices pushed 1% higher to US$100/barrel. Against this background, investors trimmed positions in “safe-haven” currencies like the USD and CHF. The EUR/USD and AUD/USD climbed to overnight highs of 1.3285 and 1.0840 respectively.
However, later in the night, the positive mood soured a little. Doubts the ECB will help out with the Greek debt restructuring, whispers Italy’s GDP would likely contract in Q4, and nasty looking Greek January budget revenue figures (-7%y/y vs. target of +8.9%) all weighed. Global stock markets reversed course to end the night modestly in the red (the S&P500 is currently down 0.1%).
As risk aversion crept higher (the VIX index rose from 17.6 to 18.4), investors ditched “risk sensitive” currencies in favour of the relative safe-haven of the USD.
The GBP was one of the weakest performers of the night. From above 1.5900, the GBP/USD skidded below 1.5820 as investors hardened expectations of further quantitative easing from the Bank of England tonight. The consensus now expects a £50-75b increase in the BoE’s asset purchase target. Confirmation of such would likely set the stage for further mild GBP underperformance in coming sessions.
The ECB also meets tonight. It may be too early to expect president Draghi to make comments on Greek bond holdings, but he should toe a relatively optimistic line on bail-out negotiations and the fiscal compact. Any suggestion of no rate cut (largely priced) would be a EUR positive. Lastly, keep an eye out for the outcome of a Greek political party meeting currently underway. Investors are hoping a deal is struck on austerity measures so Greece can secure more bailout cash.
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