By Kymberley Martin
NZD
The NZD/USD drifted lower for most of yesterday, exacerbated by NZD/AUD selling after the strong AU employment data. Early this morning global risk appetite picked up, resulting in the risk sensitive NZD/USD climbing back to 0.8330.
The release of the NZ PMI yesterday (50.5) attracted little response from the currency. The data showed manufacturing remained in expansion in January. It was not strong by any stretch of the imagination, but it is still positive and indicative of some forward momentum.
The greater excitement came across the Tasman with the release of better-than-expected employment data. This saw the NZD sold on the cross. The NZD/AUD plummeted from 0.7790 to 0.7740, a level it has clung tightly to since then.
Relative to its European peers the NZD declined yesterday, but held relatively steady overnight, despite the EUR being buoyed by rumours of progress in Greek negotiations.
The NZD/EUR currently trades around 0.6350 and the NZD/GBP at 0.5270, still not far off last August highs of around 0.5390.
After finding support at 0.8250 overnight, the NZD/USD now trades at 0.8330. Since the start of the month, the NZD/USD has essentially been consolidating its gains in a range around 0.8300.
In the day ahead global risk sentiment, likely impacted by Greek news, will dominate markets.
Any positive outcomes could see the NZD/USD attempting to retest resistance at 0.8420. However, further upside will be heavy going, given that the NZD/USD continues to trade someway above our short-term valuation model’s ‘fair value” range.
Majors
The USD made steady headway early in the night until better-than-expected US data releases, followed by positive Greek rumours, saw its “safe-haven” appeal fade. The USD then fell heavily with the EUR, GBP and AUD key beneficiaries.
Markets were bumbling sideways until the early hours of this morning.
US data releases then surprised to the upside.
Weekly jobless claims fell, and housing starts for January rose 1.5%m/m (-3.4% expected). Later, Q4 mortgage delinquencies fell and the Philadelphia Fed survey of businesses rose to 10.2 (9.0 expected). The data saw equity markets head higher (the S&P500 is now up 1.0%), and demand for the “safe-haven” USD fade. The USD index that had crept as high as 80.10 was knocked down to 79.40. It currently trades around 79.50.
The downshift in the USD was also exacerbated by talk early this morning the ECB was poised to exchange Greek bonds for new securities. This buoyed market sentiment, with talk of a Monday deadline. The EUR/USD that had slipped as low as 1.2980, jumped to 1.3120 on the combined effects of the US data and Greek headlines.
The GBP/USD was also dragged along for the ride, in the absence of any UK data releases. It surged from 1.5680 to close to 1.5800.
The AUD/USD gapped higher on strong AU employment data yesterday. Data showed AU added 46.3K jobs in January (10K expected). These were concentrated in part-time employment. Still, the unemployment rate fell to 5.1% from 5.2% (5.3% expected). For RBA policy, the key is the unemployment rate. At 5.1% unemployment, the labour market could be described as ‘tight’. Confirmation that unemployment remains at historical lows, and the apparent gradual tightening in labour market conditions, suggest that there is little chance of a rate cut from the RBA in March, barring a financial melt-down in Europe. The market still prices 60bps of RBA cuts in the year ahead, which we believe is too aggressive.
The AUD popped from 1.0680 to 1.0740 on the data, though failed initially to hold onto the gains. It then drifted off, until early this morning when global risk sentiment picked up. This saw demand for the “risk sensitive” AUD pick up, and the AUD/USD rise from 1.0660 to 1.0760 currently. Resistance for the AUD/USD is now eyed at 1.0820.
It is relatively quiet on the global data front today. Expect the market to take its cue from headlines in the ongoing Greek/troika negotiations.
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