by Kymberly Martin
NZD
The NZD/USD slipped a little lower overnight, as risk appetite remained muted. It currently trades around 0.8100.
Yesterday’s ANZ commodity price index for April extended the recent downtrend. World prices for the basket of NZ commodities fell 4.5% in the month (even a bit more than the 3% drop we had factored in), to be 14% lower than a year ago.
The NZD’s strength pushed NZD prices down further, to be almost 18% lower than a year earlier. This confirms for us that lower export returns will be a significant drag on economic growth ahead. But for all the weakness appearing on the export side of the ledger, some domestic indicators are pointing just as strongly, even more so, in the opposite direction. We see a shift toward domestic drivers of growth going forward.
Whilst the NZD held up for most of the day, it drifted off last evening. It broke below key support at 0.8120 to trade at 0.8100 currently. Still it remains firmly within its trading range since the start of March. Support is now seen at the overnight lows of 0.8090. Resistance is eyed at 0.8150.
NZD trading versus its key European peers was very choppy, tossed around by European data releases (see Majors). Despite this, the NZD/EUR sits at similar levels as yesterday morning around 0.6160 having touched 0.6190 intra-night.
The NZD/GBP eased lower after some decent UK data releases. It dropped below the 0.5000 level for the first time this year, sitting just above that level at present.
The NZD/AUD sidled lower overnight to trade just below 0.7850 at present, just above key support levels. Today, there are 2nd teir data releases on both sides of the Tasman with NZ employment data at 10.45am (NZ time), and the AU PSI at 11.30am (NZ time).
We expect NZ’s employment data will continue to exhibit robustness, in the form of a 0.2% increase in employment, a jobless rate kept down at 6.3% and, more to the point, one of the very highest employment rates in the world.
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Majors
Over the past 24-hours the USD has been broadly stronger, benefiting from EUR weakness. The index currently trades just above 79.10.
The EUR/USD gapped lower after the release of disappointing Eurozone April PMI manufacturing data (45.9 vs. prior reading of 46.0). This confirmed Eurozone manufacturing activity contracted for a ninth consecutive month. Soon after, data showed the Eurozone unemployment rate ticked up to 10.9% in March from 10.8% previously. This put further downward pressure on the currency. From 1.3320 last evening it stabilised around 1.3160 early this morning.
The USD was the key beneficiary of the jerky movement in the EUR. The USD index moved higher in two jumps last night, taking it from 78.80 to 79.10 currently.
The GBP was chopped around by data releases. It initially fell in sympathy with the sharp downward move in the EUR. It then surged higher, soon after on the release of decent UK data. Amongst other data, the UK PMI construction for April remained firmly in expansion (55.8 vs. 54.0 expected). The GBP/USD later drifted off to trade just below 1.6200 currently.
Elsewhere, a slightly more sombre mood pervaded markets. Our risk appetite indicator (scale 0-100%) clung on around 63%. Equities posted modest negative returns with the Euro Stoxx 50 down 0.70% and the S&P500 currently down 0.30%. The CRB global commodities index fell 1.3%.
In this backdrop the AUD/USD did well to remain fairly range-bound, especially given AU short-end interest rates continue to slump after the RBA’s 50bps rate cut. The AUD/USD dropped below 1.0390 before returning to trade around 1.0330 currently.
Today, the AU Performance of Services Index will be released and will likely remain in contraction i.e. below 50. China’s Non-Manufacturing PMI will also be released. Although less relevant to the AUD than the Manufacturing PMI it will likely get some attention, given the market’s heightened sensitivity to any signs of slowing in China.
Tonight, Spain and France sell bonds. The US Non-Manufacturing ISM will be released. Federal Reserve members Williams and Plosser will also speak.
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