By Kymberly Martin
NZD
The NZD has held up remarkably well overnight in the face of a plunge in global risk appetite. The NZD/USD has crept slightly higher to sit at 0.8240.
Yesterday’s NZ trade figures showed the August deficit was $789m, worse than market expectations. This continues the trend deterioration in the trade balance (and current account) that we have been talking about for some time.
The annual trade deficit nudged out to -$866m in the year to August, from a revised $768m deficit in the year to July. While it garnered little response from the currency, a deteriorating trend in the current account will likely attract attention of currency markets (and rating agencies?) at some point.
Overnight, market sentiment down-shifted (see Majors) as Spanish concerns returned to centre stage. The NZD was supported on the crosses. As the EUR fell from favour, the NZD/EUR moved firmly up from 0.6350 to sit around 0.6400 this morning. Similar gains were made on the NZD/GBP.
The NZD/AUD also moved higher overnight, back up to 0.7950. It looks to be re-testing the mid-April highs at 0.7990. The cross continues to be supported by improving interest rate differentials. The market has moved to price more than 100bps of RBA cuts in the year ahead.
The market sees a 70% chance of a cut next Tuesday. As NZ OCR expectations have remained fairly stable, NZ-AU short-end swap spread continue to move higher. As AU 3-year swap yields fell to new all-time lows yesterday, NZ-AU 3-year swap spreads have become less negative. They moved to -22bps, their highest level since Feb 2010.
Today, the NBNZ business confidence survey is released. We wouldn’t be surprised to see its slip a bit below the average readings it did well to hold in August. The currency will also be impacted by any further souring in risk appetite.
It would seem a challenge for the NZD to maintain its resilience if faced with another night of general waning global sentiment. For now, support continues to be seen just below 0.8200. Resistance is eyed around 0.8280.
------------------------------------------------------------------------------------------------------------------
To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.
------------------------------------------------------------------------------------------------------------------
Majors
The ‘safe haven’ USD was back in favour overnight as European fears resurfaced. The USD index sits at 79.90.
Overnight, the precarious buoyancy in risk appetite appears to have been pricked. Our risk appetite index (scale 0-100%) has fallen from mid 70s to 69%. Given a lack of data releases, the market focused on violent protests in Spain against austerity measures (Spain is a country of 25% unemployment).
The mood was not helped by a call from the Catalan president for early elections to push for self-determination in the region.
Northern European states also stated yesterday the ESM should paly only a limited role in Spanish bank recapitalisations. The rest of the burden should fall on Spain. The Bank of Spain said the economy continued to contract at a ‘”significant pace” in Q3.
Negative sentiment was expressed across asset classes. The Euro Stoxx 50 declined 2.70% (The Spanish IBEX -3.9%) and Spanish yields soared. The EUR/USD slipped from 1.2910 to sit around 1.2860 at present. Tarnished by the European brush the GBP/USD also slipped to 1.6150.
The USD was a key beneficiary. The USD index rose fairly steadily from 79.60 to sit at 79.90.
Given the shift in sentiment, the Antipodean currencies actually help up fairly well. The AUD/USD traded in a 1.0340 to 1.0380 range for most of the night, sitting just below 1.0360 currently.
Today, AU job vacancy data will be released which should confirm the softness in the AU labour market.
Tonight, there is plenty on the data front to add to the mix of ongoing European headlines.German unemployment and the EC confidence indicators are released. In a test of the market’s nerves Italy will auction bonds. US GDP, durable goods orders and pending home sales will also be released.
All up, plenty to add to market volatility.
Event Calendar:
27 September: NBNZ business confidence; UK GDP; EC confidence indicators; US GDP; US initial jobless claims 28 September: NZ Building permits; NZ credit aggregates; AU private sector credit; CH, HSBC manufacturing PMI, US Chicago PMI; US University of Michigan confidence.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.