The rally in 'risky' assets, including the NZD, has run out of steam

The rally in 'risky' assets, including the NZD, has run out of steam

By Kymberly Martin

NZD

The NZD stumbled lower over the past 24-hours, as risk appetite waned, following the underwhelming outcome in the Greek negotiations, and weaker-than-expected European PMI data. The NZD/USD trades at 0.8300.

Our risk appetite indicator (scale 1-100%) has pulled back slightly from 60.3% to 59.2%, and equity market posted modest negative returns. The rally in “risky” assets, including the NZD, appears to have run out of steam, for now. The market realises not a lot has changed in Europe, despite the announcement of a deal in the Greek negotiations, and economic data in the region is also lacklustre.

The NZD/USD subsided from overnight highs of almost 0.8360, to trade around 0.8300 currently. It is still comfortably within its range of consolidation since the start of the month. Solid near-term resistance continues to be seen at 0.8380. Support is eyed at 0.8260.

The NZD/GBP experienced volatile trading overnight after the release of Bank of England minutes (see Majors).On the release, the NZD/GBP surged higher, above 0.5300, before returning to trade around 0.5290 currently.

Overnight, the NZD eased lower relative to both the EUR and AUD. The NZD/AUD currently trades around 0.7800. There are no key data releases on either side of the Tasman today, so expect both currencies to take their cues from developments in global risk sentiment.

Majors

The USD was mildly stronger as demand for 'risky' assets has run out of steam. The GBP was weaker after the release of Bank of England minutes.

Overnight, focus moved from Greece to economic data showing that economic activity in Europe was slightly weaker than expected. While German manufacturing and services PMI managed to cling on above 50 (a sign of expansion), they had slipped from their previous reading. The composite PMI for the Eurozone, as a whole, slipped to 49.7 from 50.4 previously. Both manufacturing and services are now contracting.

The EUR/USD fell on the data from above 1.3260 to 1.3220. However, it later clawed its way back to trade around 1.3250 currently. Conversely, the USD index bounced off last night lows around 79.00, to trade around 79.20 currently.

The USD/JPY continued its steady rise over the past 24-hours, moving up from 79.70 to 80.30 currently. Its rapid ascent since the start of the month, exacerbated by further quantitative easing, has seen the JPY weaken versus the USD to levels seen in July last year. This was before the BoJ’s first in a series of interventions, in August.

The GBP/USD gapped lower after the release of the Bank of England minutes. These showed that at the last BoE meeting, two policy makers argued for £75b of further asset purchases as opposed to the £50b that was finally agreed. This leaves the door open for more quantitative easing. The GBP/USD dropped from 1.5780 to 1.5700, drifting lower overnight to trade at 1.5670 currently.

Tonight we get the German IFO survey, for indications of the state of the business sector in the “power house” of Europe. US house price data will also be released.

All its research is available here.

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