By Kymberly Martin
NZD
The NZD/USD is only marginally higher this morning at 0.8200, though it surged to almost 0.8240 last evening after a positive ruling from the German Court (see Majors).
The NZD/USD traded very quietly yesterday in the absence of local data. It was briefly boosted last evening in the relief rally for ‘risky’ assets that followed the uncomplicated German Constitutional Court ruling.
The NZD/USD briefly broke above early August highs to trade almost to 0.8240. However, the surge was not maintained and the currency now sits just below 0.8200.
The next 24-hours provide plenty to impact the NZD, with meetings of both the RBNZ and the US Federal Reserve. Both are expected to move in the direction of softening their tone, though rate moves are not expected from either.
The chance of a major surprise from the RBNZ is not high. However, any increase in rate cut expectations would likely prove a downward drag on the NZD/USD.
The greater influence on the currency may come from the FOMC meeting tonight. There is some risk of a knee-jerk fall in risk sensitive currencies (see Majors). Key resistance fro the NZD/USD is seen at the overnight high near 0.8240. Solid support is seen at 0.8080.
There was slightly choppy trading on the crosses overnight. The NZD/EUR initially burst higher last night on improved risk appetite, before returning to trade at the familiar 0.6360 level. This cross will continue to be influenced by European headlines, though tonight the focus will clearly be on the US.
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Majors
The EUR and ‘risk sensitive’ currencies out-performed overnight, though overall moves were quite modest.
After all the anticipation, the German Constitutional Court ruling passed without drama. It confirmed the legality of the ESM.
It did not propose onerous conditions or call for a referendum on the issue, thus removing the key risk of further delay to European proceeding.
Still, there was only limited reaction from markets that appeared to have already priced this positive outcome. Our risk appetite index remains at 71% and equities posted marginally positive returns.
The EUR and ‘risk sensitive’ currencies were key beneficiaries immediately post the Court announcement. However, moves higher were not really sustained.
The EUR/USD climbed to almost touch 1.2940 before returning to sit just below 1.2900. The EUR was also supported by better-than-expected EU industrial production data for July (0.6%m/m vs. 0.1% expected).
The GBP/USD was dragged higher on the coat-tails of the EUR, despite mixed UK employment data. The positive came in the form of jobless claims falling by 15k in Aug. However, the ILO unemployment rate still ticked up from 8.0% to 8.1%.
The GBP/USD moved up to 1.6110, now looking to re-visit October 2011 highs around 1.6170. A break of this level would open the way for a re-test of late April highs at 1.6300.
In the next 24-hours however, the fortunes of the GBP/USD along with other currencies are likely to be determined by the USD’s response to tonight’s FOMC meeting.
As with the German Court ruling, the much anticipated event may pass with a sense of anti-climax. Much is already priced into markets and recent USD weakness.
If QEIII is not delivered, the knee-jerk reaction would likely see the USD higher, with risk-sensitive currencies underperforming. However, if there is no immediate QEIII, the Fed will likely extend the guidance of rate hikes from 2014 to 2015 and reiterate its strong easing bias. These factors may help sweeten the pill of disappointment for investors.
Event Calendar:
13 September: NZ RBNZ policy statement; NZ PMI; AU RBA Bulletin; EU SNB meetgs; US PPIs; US jobless claims; US FOMC meet; G20 begins; 14 September: Eurogroup meeting; US CPI; US retail sales; US Michigan consumer confidence.
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