By Kymberly Martin
NZD
The NZD/USD has extended its gains over the past 24-hours to sit just below 0.8320 currently.
Yesterday’s NBNZ business opinion survey provided some relief that a modest NZ growth story remains intact. Importantly, “own activity” optimism has been accompanied by an expressed desire to take on more staff.
The survey also showed that more and more the NZ expansion seems reliant on the construction sector, where confidence is soaring.
Taking the data in its stride the currency extended its pace overnight as general risk appetite improved (see Majors).
The NZD/USD broke through resistance at 0.8280 late last night to sit just below 0.8320 at present. The currency now looks set to probe resistance at 0.8350 (mid September highs).
From late last night the NZD also made gains on the crosses. The NZD/AUD sits slightly higher this morning at 0.7960 .The mid-April high at 0.7990 is still the key resistance level to break.
Yesterday, interest rate differentials that have been moving in favour of the NZD of late, slipped a little.
As AU short-end yields rose, the NZ-AU 3-year swap differential moved from -26bps back to -36bps. Medium term we continue to see interest rate differentials moving in favour of NZ supporting the NZD/AUD cross.
Today, NZ credit aggregates will be released. We expect these will likely continue to pick up, though at a moderate pace. NZ building consent data should show a trend rebound is underway.
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Majors
The USD underperformed overnight as risk appetite improved. The NZD and AUD were amongst the strongest performers.
Sentiment toward Europe improved overnight after Spain’s 9-month old government announced its 5th austerity package. It aims to shrink its budget deficit from 6.3% this year to 4.5% next.
Also aiding sentiment were comments from China, suggesting it was ready to support its economy. A PBOC Advisor said the RRR may be cut further if external demand slows and reverse repos are a key policy tool for now.
European equities posted modest gains and the S&P500 is currently up 1.0%. Our risk appetite index (scale 0-100%) has crept back above 70%.
Given the slightly better market mood the USD lost its ‘safe haven’ appeal. In addition, some slightly soggy US data failed to spur demand for the currency. Q2 GDP was revised down to 1.3% (formerly 1.7%).
Durable goods orders fell 13.2% (-5% expected) and pending home sales fell 2.6% m/m (0.3% gain expected). The USD index declined from close to 79.90 to around 79.50 currently. The EUR stepped up from around 1.2880 to trade around 1.2910.
The ‘risk sensitive’ AUD was also a beneficiary of the improved mood, particularly given the currency’s association with China demand. The AUD moved up from 1.0370 to 1.0440. AU private sector credit aggregates are released today.
Our NAB colleagues expect a 0.2% gain (market 0.3%). Attention will be on the outcome for business credit. If August shows another weak result the RBA will question just how much the impact rate cuts are having on business credit growth, while household credit growth remains soft.
Tonight, aside from European headlines, the key US data releases will be the Chicago PMI and the University of Michigan consumer confidence index.
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