by Kymberly Martin
NZD
The NZD/USD traded lower over the past 24-hours. Finding support at 0.7860 it now trades at 0.7910.
Yesterday’s NZ Manufacturing PMI dipped from the lofty May reading of 55.8, to 50.2 in June. Being right on the 50 mark it suggests manufacturing is marking time after May’s expansion. While the details were mixed, the overall trends remain positive and indicate manufacturing will make another positive contribution to GDP growth in Q2.
The result however saw the NZD drop sharply relative to the AUD. This was soon reversed after a disappointing employment data result was dished up across the Tasman (see Majors).
The NZD/AUD then lurched higher and a gradual upward path ensued to take the cross to 0.7800 currently. The move up was underpinned by a rise in the NZ-AU interest rate differential as the market increased expectations of RBA rate cuts. NZ-AU 3-year swap spreads moved up from -51bps to -42bps.
In line with generally muted market sentiment however, the NZD/USD was on a fairly steady downward path yesterday. Key support at 0.7860 was tested overnight.
It will be important for this level to hold today if the NZD/USD is to maintain its current trading range. A convincing break would open the way to further downside. The NZD was also a little weaker relative to its key European peers.
There are no NZ data releases today. Expect the NZD to take its direction from general risk appetite and Chinese data to be released this afternoon (2pm NZT).
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Majors
Risk appetite remained muted overnight. The US and JPY were key beneficiaries.
Market sentiment was relatively depressed overnight, underpinned by markets’ disappointment at the lack of policy response from both the US Fed and BoJ, and lingering Eurozone concerns.
In addition, progress in the 2Q S&P500 earning reporting season is lacklustre. There is some concern that profit growth, that has been a key underpinning of the economy, may be less supportive going forward. With 28/500 companies having reported, earning growth sits at -2.40%. Equities posted losses overnight. The Euro Stoxx 50 closed down 0.80%, and the S&P500 is currently down 0.50%.
The USD was a key beneficiary of the sober sentiment. The index rose from 83.40 to trade around 83.70 currently, touching new 2-year highs overnight. The result of the index is however flattered by its heavy weighting toward the EUR.
The EUR/USD continued to slip overnight, itself making new 2-year lows. It declined to touch 1.2170, before creeping back up to 1.2200 currently. There is no obvious respite on the horizon for the common currency, now the market has reigned in its expectations of further QE from the US Federal Reserve.
The Bank of Japan left interest rates close to zero as expected yesterday. However, it appeared to disappoint expectations of further policy easing. In the event, the BoJ added ¥5t to its Government debt purchases, but reduced its special lending facility by the same amount.
Essentially, it left the total size of its asset purchase programme unchanged. On the announcement the USD/JPY spiked from 79.50 to 79.90, before quickly returning to its previous level. The more dominant theme, of the JPY as a ‘safe haven’ in the backdrop of a nervous market, appeared to prevail. The USD/JPY drifted down to trade around 79.30 currently.
The AUD fell precipitously yesterday after the AU employment report. It was a softer report, but perhaps not as weak as headlines suggest. Total employment was down 27k in June, a bit worse than the consensus zero change expectation.
The unemployment rate (more relevant for policy and less volatile) was up to 5.2% from 5.1%, as expected. Still, the AUD/USD fell from 1.0250 to below 1.0200 on the report, falling off further overnight to trade around 1.0150 at present.
Chinese data (industrial production, fixed asset investment, retail sales and GDP) will be the key driver of the AUD today. While growth is expected to have eased a little in Q2 (to 7.7%y/y) the market is in no mood to absorb any downside surprise.
Other news: EU industrial production (May), 0.6%m/m vs. 0.0% expected * NZ food prices (June) 1.4% vs. 0.3% previously
Event Calendar:
13 July: CH IP, GDP, retail sales, & investment; JN IP; US PPI
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