By Mike Jones
NZD
The NZD has started the week on the front foot, thanks to a bout of solid NZD/EUR buying overnight.
Overall, it’s been another forgettable night in FX markets. Most of the major currencies are barely changed from where they began the week.
The NZD/USD traded a 40 point overnight range. There is a fair likelihood the rest of the week is similarly unexciting, as investors await the important events of late August/early September.
European currencies ran into a few headwinds overnight, after German officials cast doubt on the ECB’s supposed plans to buy the bonds of troubled European sovereigns.
NZD/EUR pushed up to the top end of its recent 0.6530-0.6570 range, with the NZD/USD riding up to almost 0.8100 on its coat tails.
Looking ahead, there are a few pieces of second tier data to keep an eye on today. NZ net migration figures are due at 10:45am, and credit card spending numbers are released at 3pm. We’re looking for a small fall in July spending.
However, the quarterly RBNZ survey of expectations will probably be the highlight of the NZ data week (also 3pm).
The RBNZ will be hoping the 2-year inflation expectations measure drifts down further from Q2’s 2.4%y/y. An increase would be the biggest surprise for a market still toying with RBNZ rate cuts.
Across the Tasman, the August RBA minutes will be released at 1:30pm (NZT). These are likely to have little information content over and above the recently released Statement of Monetary Policy. So investors may well gloss over the minutes in favour of Friday’s testimony from RBA Governor Stevens.
All up, we suspect a light week for event risk and low volumes mean the NZD/USD is in for a bit more sideways consolidation in the near-term. Initial support is eyed at 0.8020, while bounces towards 0.8130 should encounter resistance.
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Majors
It’s been another fairly lacklustre 24 hours in currency markets. A mild bout of EUR cross selling was the most notable theme from the overnight session. Even so, the EUR/USD remains firmly entrenched inside the familiar 1.2250/1.2385 range.
In an otherwise quiet night, markets briefly perked up following some comments from the German Bundesbank (Buba).
The Buba said it remains opposed to the ECB’s plans to lower peripheral bond yields, as the plans carry significant stability risks.
The ECB also chimed in, saying that, contrary to various media reports, bond yield targets had in fact not been discussed.
The comments were enough for investors to reign in their risk appetite a touch. After all, the growing expectation the ECB will soon be buying Spanish and Italian bonds has been responsible for a good chunk of the recent ‘risk’ rally.
After opening higher, global equity markets have mostly slipped back into the red. Commodity prices are a little mixed, and most risk aversion gauges have eased off their lows – the VIX index rose from 13.4% to above 14.5%.
The reaction in currency markets was a little more subdued. The EUR/USD slipped back to 1.2300, from above 1.2350, amid speculative buying of AUD/EUR and NZD/EUR. Outside of the EUR, most of the major currencies simply shuffled sideways.
We doubt the Buba comments are a game changer. For one thing, Buba chief Wiedmann has already hinted he will support ECB bond buying as long as full conditionality is met.
And don’t forget German chancellor Merkel effectively gave the plan the green light last week. Given this, we doubt we’ll see further substantive EUR/USD downside in the short-term.
Supporting this view is the fact that European peripheral bond spreads have barely moved over the past 24 hours. If anything, Spanish and Italian spreads to German bunds are actually marginally lower. EUR/USD support at 1.2250 looks solid.
Other News: Greek minister Avramopoulos says Greece will fulfil its pledges to partners. US Chicago Fed manufacturing index grinds up to -0.13 in July (below expectations for -0.05). UK house prices disappoint again, falling 2.4%m/m in August (+2.0%y/y). NZ PSI slips to a 7-month low of 53.1 (53.9 prior), but remains indicative of ongoing expansion in the NZ service sector. Chinese press talks down RRR cuts from the PBOC, weighing on Chinese stocks yesterday.
Event Calendar: 21 August: NZ net migration; NZ credit card spending; NZ inflation expectations; AU RBA minutes; UK public sector borrowing; US Fed’s Lockhart speaks; 22 August: US existing home sales; US FOMC minutes; 23 August: CH HSBC Flash PMI; EU PMIs; US jobless claims; US new home sales; 24 August: NZ trade balance; AU RBA’s Stevens testifies; JN BOJ’s Shirakawa speaks; UK GDP; US durable goods orders.
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