By Dan Bell
The NZD/USD opens around 0.8265 after trading to a high of 0.8335 overnight.
Risk sentiment was upbeat through the early European session on expectations Spain would request an official bailout - clearly a great reason to go long risk?
But later in the day Spain’s PM dashed these hopes by saying that ‘we won’t be asking for aid this weekend’ which has seen US stocks turn negative with the S&P 500 down 0.28% as I write-after being up over 0.5% at one stage.
The RBA cut interest rates yesterday by 25bps to 3.25%. While the market was pricing a 60% chance of this many economists were surprised.
As a result the AUD lost ground against most major currencies. The NZDAUD is trading at new 12 month highs over 0.8050.
The RBA made mention of the high exchange rate and clearly sees this as an ongoing risk to the rest of the ‘non-mining’ economy. They also see the recent boom in the resources sector topping out next year - “Looking ahead, the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur”.
Most economists are now forecasting at least another 25bps rate cut within the next few months. This will continue to weigh on the AUD and provide support to the NZDAUD cross rate.
The NZD opens at current indicative mid rates: 0.8265 USD, 0.8055 AUD, 0.6395 EUR, 0.5120 GBP, 64.55 JPY, and 0.8130 CAD.
Fonterra Dairy Trade Auction prices fell 0.9% overnight. Nothing to get too upset about given prices are up 20% over the last few months.
Not much to report on the economic calendar today. We get Trade Balance numbers from Australia this afternoon.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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