NZD at mercy of surging USD

'Risk sensitive' basket of currencies continues downward path

Currencies

'Risk sensitive' basket of currencies continues downward path

15th Mar 12, 9:04am by bnzeconomists

By Kymberley Martin

NZD

The NZD has been unable to stand in the way of the sweeping broad strength of the USD, following yesterday morning’s Federal Reserve decision. The NZD/USD has been on a steady downward path trading around 0.8080 currently.

In the absence of any local data releases, the NZD was completely at the mercy of the surging USD. The USD was supported by improving interest rate differentials, and more upbeat sentiment regarding the prospects for the US economy.

The NZD broke a key support level around 0.8100 overnight, opening the way for further downside, though it currently appears to be comfortable at the 0.8080 level.

The NZD was also on a downward path on most crosses overnight. The NZD/AUD was on a one-way path South, trading around 0.7740 currently. Its prospects were no better relative to its key European peers.

The NZD/GBP has traded down to 0.5150 currently. Key support levels on the NZD/EUR are still holding however, at around the 0.6190 level. This has marked the bottom of its trading range since mid - January.

We would look for this level to try and hold today, with resistance seen at 0.6280.

Today, the NZ PMI will be released at 10.30am (NZT). The PMI kept its nose above water in January at 50.5. It is probably too early, but we will be on the lookout for any signs that the optimism brewing in the construction sector is filtering through to manufacturing. The new orders index will be important in this regard.

-------------------------------------------------------

To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.

------------------------------------------------------------------------------------------------------------------------------------------

Majors

Broad USD strength was the key theme over the past 24-hours, after yesterday’s US Federal Reserve meeting boosted US yields and demand for the USD. The USD strengthened versus all of its peers.

After the Fed’s meeting yesterday US bond yields have taken flight (see Fixed Interest). US swap yields also surged higher, helping to improve the interest rate differential between the USD and its peers.

For example, the US 3-year swap rate has risen from 0.71% to 0.82% in the past couple of days. In this backdrop the USD index rose from 80.00 to just below 80.60 in the past 24-hours.

Our risk appetite index has made further gains to 70%. However, equity markets’ response was more mixed. The Euro Stoxx 50 closed up 0.70% but the S&P500 is currently down -0.30%.

The EUR traded a choppy downward path over the same period. Its fortunes were not helped by data last night showing Eurozone industrial production declined 1.2%y/y in January (-0.8% expected). The EUR/USD has traded down to just above 1.3020.

The GBP/USD showed a fair amount of volatility over the past 24 - hours but has also been on a generally lower path. Data overnight showed UK unemployment remained stubbornly at 8.4% in January. The GBP/USD currently trades around 1.5670, down from overnight highs above 1.5740.

It appeared to be one - way traffic in the USD/JPY overnight, continuing the trend since the start of February. The USD/JPY has traded up to around 83.70. It highlights the fortunes of a currency pair where one central bank (Japan’s) has actively extended its quantitative easing program, whilst the other (US) appears to be less likely to extend its current program.

The “risk sensitive” group of currencies, AUD, CAD and NZD were also unable to stand in the way of a broadly stronger USD. The AUD/USD was on a steady downward path from 1.0540 last evening to 1.0440 currently, its lowest level since mid-January.

This evening we get the Eurozone Q4 employment report. Tonight, we get further colour on the state of the US manufacturing sector, with the US Empire Manufacturing release, producer prices and the Philadelphia Fed survey.

No chart with that title exists.

All its research is available here.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

2 Comments

by Realtor in France | 15th Mar 12, 8:58pm 1331798281

Talk about printing, has Greece started it's own Euro press... What will the Germans have to say about this? http://hat4uk.wordpress.com/2012/03/15/bank-of-greece-printing-its-own-…

by Andrewj | 15th Mar 12, 9:52pm 1331801543

Propaganda Wars: Our Version – Toxic bloom of lies

http://www.golemxiv.co.uk/2012/03/propaganda-wars-our-version-toxic-blo…