By Kymberly Martin
NZD
The NZD/USD fell to find support at 0.8050 overnight, after the USD responded positively to US retail sales data.
Earlier yesterday, the NZD was boosted by a strong NZ Q2 retail sales release. While the data contained a bit of noise the headline reading showed sales rose 1.3% in Q2 following the -0.6% fall in Q1. Retail sales volumes are now up 4.8% on a year ago.
Maintaining its gains during the day, the NZD/USD then fell off overnight after broad demand for the USD picked up (see Majors). From above 0.8110 the NZD/USD now trades just above 0.8050.
Having broken below key support overnight, the NZD/USD now looks a little vulnerable to any further improvement in sentiment toward the USD.
Tonight’s US data releases will by important in this regard. There are no NZ data releases today, although we will be watching the Fonterra milk auction in the early hours of tomorrow morning with interest.
We expect to see a further modest rise in prices following the positive result at the last auction. A fall would be disappointing.
The NZD was also generally weaker on the crosses overnight. European currencies were supported by a lack of negative European data, and by speculation Spain may be moving closer to seeking rescue funds.
The NZD/EUR slipped to find support at the 0.6530 level.
Today, in the absence of NZ data releases, AU data have greater potential to impact on the NZD/AUD cross. The AU consumer confidence indicator and wage cost index will be released at 12.30pm and 1.30pm (NZT) respectively.
Our NAB colleagues now expect no further rate cuts from the RBA (see Majors). The market continues to price 60bps of cuts. We will therefore look for incremental data to nudge market pricing of RBA activity higher.
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Majors
It was another relatively contained night for currencies. The USD gained the upper hand after better-than-expected US retail sales data.
The market maintained a fairly buoyant mood overnight. European data releases were relatively benign and US July retail sales data came in stronger-than-expected. It rebounded from -0.5% to 0.8%.
Our risk appetite index (scale 0-100%) stayed at a healthy 71% level, and the Euro Stoxx 50 closed up 0.7%.
In response to the retail sales data, the USD strengthened. This suggests the market sees the data as contributing to a lower probability of further quantitative easing.
Still, overall moves were relatively contained, with the USD index moved off overnight lows at 82.20 to trade at 82.50 currently.
The EUR was on the ascendancy earlier in the evening when European data failed to contain any very nasty surprises. European Q2 GDP was seen contracting 0.2% as expected.
The German ZEW survey of current conditions moved up to 18.2 (17.5 expected), even though the forward looking economic sentiment fell further (to -25.5 from -19.6 previously).
The EUR/USD touched a peak above 1.2380 ahead of the US retail sales data. It then fell to trade at 1.2330.
The AUD/USD slipped slightly to 1.0500 after the US retail sales data. Yesterday’s Australian NAB July business survey was a little on the soft side, falling 2 points to -3, some way below the long run average of 1.
Still, the recent run of slightly firmer Australian data has prompted our NAB colleagues to revise up their 2012 AU growth forecast to 3.6% (3.1% previous).
They now expect no further rate cuts from the RBA (previously one 25bps cut was expected). The market still prices around 60bps of RBA cuts by a year’s time.
If the market moves to price the NAB view, this would provide significant support for the AUD. Still, pin-pointing the near-term catalyst is always difficult. Today, we will be watching the AU consumer confidence wage cost data.
Elsewhere, the UK releases employment data tonight, along with the Bank of England’s MPC minutes. In the US, the Empire Manufacturing index, CPI, industrial production and NAHB housing market data are released. Further solid US data could help underpin demand for the USD.
Event Calendar: 15 August: NZ card spending; AU consumer confidence; AU wage costs; UK BoE minutes; UK employment; US CPI; US empire manufacturing; US IP;16 August: NZ dairy auction; NZ BNZ PMI; US Fed’s Kocherlakota speaks; UK retail sales; EU CPI; US jobless claims; US housing starts; US Phillie Fed; 17 August: NZ PPIs; US Michigan consumer confidence.
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