by Kymberly Martin
NZD
The NZD continues to be supported by the general improvement in market sentiment.
Our risk appetite indicator (scale 0-100%) moved up from 54% to 59% overnight. The NZD/USD currently trades around 0.8270.
The NZD continues to trade on global dynamics, showing little response to yesterday’s NZ PMI. March's PMI was a solid result (54.5).
Although it didn't quite live up to February's humdinger, it represents positive momentum.
These PMI results fit with our view that manufacturing made a decent positive contribution to overall Q1 GDP growth. However, the NZD/USD was on a general uptrend yesterday given improved global risk sentiment.
It traded from 0.8200 yesterday afternoon to around 0.8270 currently.
The NZD was also on the ascendancy relative to its key European peers. Its prospects relative to the AUD however, were determined by the upside surprise to AU employment data (see Majors).
This saw the NZD/AUD plunge from just below 0.7950 to around 0.7910. It soon stabilised however, and has subsequently clawed its way back to trade above 0.7920. The key to watch for the cross today will be Chinese data. It is due for release at 2pm (NZT).
The NZD/USD is currently testing its key resistance level at 0.8270. A break above this level today would be significant. Support is seen at 0.8180.
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Majors
Broad market sentiment continued to recover. The USD index declined steadily over the past 24-hours and the AUD was the strongest performer.
Risk appetite was boosted by a successful Italian bond auction last night (see Fixed Interest). Also assisting the mood was data showing Eurozone industrial production rose 0.5%m/m in February (-0.2% expected).
However, there were downward revisions to the previous month’s data. Still, the market was in the mood to see the positives. The Euro Stoxx50 closed up 0.50% and the S&P500 is currently up 1.40%. The CRB index of global commodities rose 1.20% on the day.
In this backdrop the EUR/USD rose from 1.3100 to trade around 1.3190 currently. The USD index was on a fairly steady downward path. A slightly weaker than expected jobless claims number (380k vs. 355k expected) was not enough to prompt “safe haven” demand for the USD. The USD index traded down from 79.70 last evening to 79.30 currently.
The AUD has been the star performer over the past 24-hours. It was given a shot in the arm yesterday afternoon after the release of the AU employment data. Against an expectation for the unemployment rate to rise it held steady at 5.2% in March.
AU consumer inflation expectations also rose from 2.7% to 3.3%. The data was not sufficient to change our expectation for an RBA rate cut in May. However the market revised down its expectations for rate cuts in the year ahead from 95bps to 85bps, expectations we believe are still too aggressive.
After the data the AUD/USD gapped from 1.0305 to above 1.0360. Thereafter it was on a gradual ascent, boosted by the better tone in markets.
Sentiment toward the currency was also likely helped by comments early this morning from a Chinese government researcher saying the economy will likely grow 9.0% in 2012.
The source also suggested the PROC may cut the Reserve Requirement Ratio (RRR) by 3-4 more time this year. The AUD/USD currently trades around 1.0440.
Attention will remain on China today with a slew of data releases; industrial production fixed asset investment, GDP and retail sales.
Tonight we also get US CPI and the University of Michigan Consumer Confidence survey.
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