By Kymberley Martin
NZD
The NZD subsided in the early hours of Saturday morning to finish the week around 0.8170.
While the general tone in markets was quite positive on Friday night, this appeared to have little direct impact on the ‘risk sensitive’ NZD.
Rather the NZD declined, before finding support at the key 0.8150 level.
While there is no shortage of action on the global front, NZ data may take on greater significance this week.
Tomorrow’s Quarterly Business Survey of Business Opinion will be important. A level around last month’s (-4) would suggest our forecast of a moderately progressing economy remains intact.
We expect to see signs that inflation is contained for now, but capacity constraints are starting to nip at the heels.
Tomorrow also delivers the QVNZ housing report for September. This will likely show enough simmering pressures to remain on the RBNZ’s radar.
The NZD/USD may be forming a wider range as seen during the March-April trading period this year. This was defined by highs around 0.8320 but a lower end to the range at 0.8060. There are no NZ releases today.
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Majors
On Friday, following a fall in the US unemployment rate, risk appetite surged and the ‘safe haven’ USD and JPY fell from favour.
Friday evening saw the usual headlines speculating around the timing of a Spanish application for aid. A central bank source was quoted as saying the ECB would likely buy sovereign bonds “heavily” for 1-2 months under the OMT programme, before stopping for assessment.
The Euro Stoxx 50 had a bid tone from the outset, though it was the release of US data later in the night that really boosted sentiment.
US data showed the unemployment rate unexpectedly fell to 7.8% (8.2% expected), its lowest level since the start of 2009. This will play directly into the Obama camp for the upcoming elections. Our risk appetite indicator (scale 0-100%) moved up to 79%, its highest level since mid 2007 (pre-GFC).
Currency moves were not dramatic, but the ‘safe haven’ USD and JPY both suffered losses following the release of the data. The USD index ended the week just above 79.30.
By contrast, the EUR/USD closed a little higher on Friday night at just below 1.3050. It is a relatively light data week for the Eurozone ahead, though there is unlikely to be any shortage of headlines to impact on the EUR. Tonight, the Eurogroup finance minister’s meeting kicks off in Luxembourg.
On Tuesday, German Chancellor Merkel visits Greece, suggesting pressure on the country to enact spending cuts will continue. Italy will also return to the markets to sell bonds on Thursday night as a barometer of current appetite for sovereign risk.
The AUD and NZD appeared to be trading in their own world on Friday night, little impacted by trans-Atlantic developments. The AUD drifted lower to close the week just above 1.0180. It sits precariously on key technical support levels around 1.0160 at present. A break of this level opens the way for a fall back toward parity.
This week will see AU NAB business confidence published on Tuesday. Wednesday will complement this with the Westpac consumer confidence index. Thursday will bring all-important AU labour data for September. There is therefore no shortage of risk events for the AUD ahead.
Elsewhere, the key US releases this week will be the Wednesday Beige Book release and Friday’s University of Michigan consumer confidence survey.
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