by Kymberly Martin
NZD
The NZD/USD continued its recent descent in the backdrop of waning risk appetite on Friday night. The NZD/USD ended the week at 0.7955.
On Friday night, global risk appetite was battered by a disappointing US non-farm payrolls release (see Majors). This resulted in little appetite for “risky” currencies such as the NZD. The NZD/USD slipped further, to end the week just below 0.8000.
This morning, it has opened under additional pressure. Market sentiment has been further dented over the weekend by political uncertainty in Europe (see Majors). The NZD/USD currently trades around 0.7940, its lowest level since mid-January.
The NZD also fell relative to the EUR on Friday night, but managed to claw its way back to 0.6080 early on Saturday morning. This morning the NZD/EUR has opened up, after the weekend’s European political developments weigh on the common currency. The NZD/EUR currently trades at 0.6090.
The NZD/AUD fared slightly better, inching up from around 0.7810 on Friday evening, to end the week around 0.7820. It bounced off support at 0.7780 intra-night.
There will be plenty of event risk on the cross this week, with an array of data releases on both sides of the Tasman, and critical Chinese data on Thursday and Friday. For today, we get AU Building Approvals, Business Confidence and Retail Sales.
There are no NZ data releases today. Expect moves in the NZD/USD to be driven by global risk appetite, especially by developments in sentiment regarding French and Greek political outcomes. It is likely the NZD will find it difficult to reverse its recent downtrend today.
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Majors
The USD benefited from its “safe haven” appeal after US non-farm payrolls disappointed on Friday. The JPY also strengthened.
After being fairly quiet earlier in the evening, markets burst into life after the release of a weaker-than-expected US non-farm payroll numbers for April (115k vs. 160k expected). This takes additions to payrolls back to the levels of late last year, before the new year improvement.
Risk appetite weakened across all markets. Our risk appetite indicator (scale 0-100%) slipped back from 63% to 57%. Equity markets recorded negative returns (Euro Stoxx 50 -1.70%, S&P500 -1.60%).
In this backdrop, the USD was in favour. The USD index surged from 79.10 to 79.50 on the release. The other beneficiary was the “safe haven” JPY, the strongest performing currency over the past 24-hours. The USD/JPY slipped from above 80.30 to trade around 79.80 currently.
Conversely, the EUR came under pressure after the US payrolls release. The EUR/USD slipped from just below 1.3180 to end the week around 1.3080. Over the weekend, French President Sarkozy lost the election to Socialist Party candidate, Hollande.
This is the ninth Euro area leader to fall in the past two years, since financial crisis has descended on the region. The jury is also still out on the Greek elections. As voters have been attracted to ‘anti-bailout’ parties is it is not clear whether key parties have enough votes to form a solid coalition. The EUR/USD has opened down this morning on the news, currently trading around 1.3050.
In the backdrop of dented risk appetite on Friday the AUD and NZD continued their recent fall from grace.
The AUD/USD slipped from 1.0250 to end the week at 1.0180, its lowest level since early January. The Quarterly Statement from the RBA, released on Friday, revealed more concern about downside risk to the economy. The RBA stands ready to do more to support growth. The market currently prices more than 80bps of rate cuts from the RBA in the year ahead.
There is a plethora of AU data this week to add to the debate. Today, we get AU Building Approvals, Business Confidence and Retail Sales.
German Factory orders will be released tonight, though the key focus in Europe today will be on politics in France and Greece.
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