QSBO survey result supports BNZ's view that NZ economy is making reasonable progress

by Kymberly Martin

NZD

The NZD/USD showed fairly volatile trading over the past 24-hours, but has slipped a little to 0.7930 currently.

NZ data releases (REINZ house prices, credit card spending, QSBO) passed yesterday without ruffling the currency.

The QSBO survey supported our view the economy is continuing to make reasonable progress, with the Canterbury region, and the construction sector, heating up. Near-term CPI will probably be muted, but capacity pressures should see core inflation pressures building into next year.

Last evening, the NZD/USD was boosted by some initial optimism as European data surprised positively, and the market absorbed EU summit commentary (see Majors).

Later, the mood was dampened and the NZD/USD has fallen back to a familiar support level at 0.7930. If this level fails to hold today we would look for a pullback back towards support at 0.7870. 

Critical tonight, will be the release of US Federal Reserve minutes. These have the potential to weaken the USD if the market perceives a heightened probability of further QE.

Overnight, the NZD/EUR again revisited the 0.6500 level but failed to move higher. The cross is currently trading around 0.6470.

The NZD/GBP also failed to hold onto overnight gains, drifting down to trade just above 0.5110 currently. This cross is now someway below its recent peak above 0.5180 achieved last week. However, fundamental support for the GBP from better prospects for the UK economy still appears some way off.

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Majors

After a fair amount of currency gyrations over the past 24-hours the USD is broadly stronger, mainly at the expense of the EUR.

Early last night the EUR was on the front foot after May Industrial Production data for the UK (1.0%m/m vs. -0.2% expected) and Italy (0.8%m/m vs. -0.6% expected) surprised to the upside.

Markets were also underpinned by signs of progress at the EU Finance Minister’s meeting regarding the Spanish bank bailout and deficit reduction criteria.

The EUR/USD traded up, above 1.2330, before market sentiment waned as US equities opened on a downward path.

The market is also wary of delay that may come as the German Constitutional Court has begun its sitting to decide on the legitimacy of the ESM and fiscal compact. A decision may take weeks.

The EUR/USD declined this morning trading below 1.2260 at present.

The USD index gained as market sentiment weakened. It moved from intra-night lows below 83.00 to trade around 83.40 currently.

The key for the USD tonight will be the release of FOMC minutes. If recorded commentary raises the markets expectation of further quantitative easing the USD would likely feel some near-term softness.

The AUD showed an erratic response to the release of Chinese June trade data yesterday. Initially, it spiked higher on the stronger-than-expected trade balance. The market was then sobered by the detail that showed import growth was down to 6.3%y/y from 12.7%y/y previously. The AUD then lost some its lustre. Overnight, it was knocked around by the rise and fall of global risk sentiment, returning to trade just above 1.0180 this morning.

This afternoon AU Consumer Confidence and Home Loans data will be released.

Tonight, the Fed FOMC minutes will be the key focus in an otherwise relatively thin evening of data releases.

Event Calendar:
11 July: AU home loans; US trade balance; US FOMC minutes; 12 July: NZ PMI; NZ food prices; AU employment; Bank of Japan meeting; EU ECB monthly report; EU IP; US Fed’s Williams & Lockhart speak; 13 July: CH IP, GDP, retail sales, & investment; JN IP; US PPI

All its research is available here.