By Kymberly Martin
NZD
The NZD/USD traded higher on the back of solid risk appetite overnight, to sit at 0.8110 currently.
The BNZ PMI release yesterday was neither here nor there, slipping slightly from 50.2 to 49.4. It does appear to have been negatively impacted by global concerns and the high NZD.
However there were increasing signs of life in the various leading indicators of the building industry.
The NZD took the release in its stride, gaining positive momentum overnight as global sentiment remained optimistic (see Majors). The NZD/USD is now sitting close to resistance at 0.8110.
A break above this level would open the way for a return to the 0.8200 level.
The NZD did not fare so well relative to a fairly robust EUR. The EUR was supported by speculation Spain is close to gaining ECB support. The NZD/EUR traded down from highs above 0.6580 to around 0.6560 at present.
The NZD/AUD was on the ascendancy overnight, trading steadily up from 0.7690 to 0.7710. In the past few days NZ-AU interest rate differentials appear to have found a bottom.
Since the start of August these had been plunging as the market reduced its expectations of RBA rate cuts in the year ahead.
However, in the past few days the NZ-AU 3-year swap differential has moved off its low of -77bps to sit at -71bps currently.
Over the medium-term we expect the market to revise higher expectations for both RBNZ and RBA activity. In the day ahead there are no key data releases to impact on the cross.
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Majors
The USD slipped a little from favour overnight. The EUR was the strongest performer over the past 24-hours.
Overnight, broad risk appetite was buoyant. Our risk appetite index sits at an elevated 73%. Equity markets recorded solid performances. The Euro Stoxx50 closed up over 1% and the S&P500 is up 0.80%.
The Spanish equity index IBEX35 closed up 4%. The market was spurred by rumours Spain will imminently apply for ECB support.
In addition, the market chose to focus on positive US building permits data, amidst an array of other lacklustre US data releases.
The USD is showing something of an erratic reaction function at the moment. It seems a little uncertain how to respond to data outcomes.
Should the currency strengthen on positive data surprises as prospects of QEIII diminish? Or should it fall as improving risk appetite diminishes the USD’s ‘safe haven’ appeal?
Last night the USD eased a little lower after data releases, from 82.80 to sit just below 82.40.
The EUR was a beneficiary of USD weakness and optimism regarding Spain. The EUR/USD rose from 1.2280 to trade at 1.2360 currently.
The UK experienced a welcome positive data surprise overnight. July retail sales-ex-auto fuel rose 3.3%y/y (2.0% expected).
This helped boost the GBP/USD that was also carried along by the stronger EUR. The GBP/USD traded up from lows of 1.5640 to 1.5740.
Generally buoyant risk appetite helped support the AUD along with the NZD. The AUD/USD found support around 1.0480 overnight before trading up to 1.0520.
The AUD is also being underpinned by the market revising its expected RBA rate trajectory. The market now expects just 50bps of rate cuts by a year’s time (It priced more than 110bps at the end of July). Our NAB colleagues do not expect any further cuts.
If the market moves toward this view, it should help support the AUD over the medium term.
Today, there is little to report on either side of the Tasman. Tonight, Eurozone trade data and the US University of Michigan Confidence Indicator will be released.
Event Calendar: 17 August: NZ PPIs; US Michigan consumer confidence.
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