By Kymberley Martin
NZD
Waning global risk appetite continued to weigh on the NZD overnight. It declined to trade just below 0.8160 currently.
As global factors remain the primary driver of the NZD at present, the currency seemed fairly oblivious to the stellar NBNZ release yesterday afternoon.
We thought last month’s National Bank Business Outlook was nothing short of staggering but this month’s efforts have completely blown the February report out of the water. A net 38.8% of businesses are optimistic about their own-activity prospects.
This would appear to be consistent with GDP growth of around 4.0%. But if you seasonally adjust this reading, you can easily come up with a figure which is 2.0% higher still.
Whichever way you look at it, the data imply a much stronger economy than any of us are forecasting. Despite this local support for the currency it continued to trade at the whim of global risk appetite. It found support at 0.8120 early this morning before creeping up to sit around 0.8160 at present.
NZD trading on the AUD and EUR crosses was much more range-bound, though the general up-trend in the NZD/AUD remains intact. It trades around similar levels to yesterday morning at 0.7870.
Today, the local data release of building permits is unlikely to touch currency markets. Direction of the NZD will continue to be dictated by global factors.
There is plenty of event risk to watch here, between now and Monday (see Majors).
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Majors
The USD and JPY were in demand overnight as risk appetite slumped further. The USD index moved up from 79.10 to 79.20. The AUD continued to decline.
Risk appetite remained under pressure last night, as the market continues to mull European concerns and the risks of slowing Chinese growth. Rating agency S&P reminded the market that Greece’s problems are not over, and it is likely to have to restructure its debt again.
A Spanish strike in protest of austerity measures also dampened sentiment. Our risk appetite index (scale 1-100%) remained off its recent highs, around 64%. The Euro Stoxx 50 closed down 1.80% and the S&P500 is currently down 0.60%.
In this backdrop the USD index was supported by its “safe haven” appeal. The release of mixed to slightly disappointing Eurozone confidence indicators then cemented the move toward the USD and out of the EUR. The EU/USD fell from 1.3320 to 1.3280.
The JPY has also been a key beneficiary of the recent souring in market sentiment. The USD/JPY declined from 83.00 yesterday afternoon to trade around 82.40 currently. It tested a critical support level at 82.00 overnight. A break of this level would portend further declines.
The AUD/USD continued its drift lower overnight. The continued decline in AU interest rates is undermining this important support for the currency.
AU 3-year swap yields fell a further 10bps yesterday, having now fallen 35bps in the past fortnight. The market now prices 73bps of RBA rate cuts in the year ahead, and 45% chance of a cut at its April meeting.
The AUD/USD declined from 1.0400 to trade around 1.0360 at present.
In the day ahead we get AU new home sales and private sector credit data. Tonight all eyes will be on the Euro Finance Minister’s meeting. Eurozone CPI will also be released.
Tonight in the US the Chicago PMI and University of Michigan Confidence survey are released.
Chinese PMI data will be released over the weekend.
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