By Kymberley Martin
NZD
The NZD benefited from some buying on the crosses overnight as market appetite for European currencies waned. The NZD/USD now sits just below 0.8220.
The NZD was stronger relative to its European peers. The market’s attention is being drawn back to European concerns as the Eurogroup of finance ministers began its meeting last night.
The NZD/EUR rose steadily from 0.6290 last evening to sit above 0.6330 at present.
Overnight, the NZD/USD once again tested the 0.8150 support level before rebounding to sit back within range. NZ data will take on greater significance today.
The release of the 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 inflation is contained for now, but capacity constraints are starting to nip at the heels. Today we also get the QVNZ housing report for September. This will likely show enough simmering pressures to remain on the RBNZ’s radar.
NZD/AUD trading was less directional. The cross has returned to trade around 0.8050, having tested support at 0.8020 overnight.
As interest rate differentials continue to move in favour of the NZD, we expect the NZD/AUD to be well supported. We maintain our end of year target of 0.8200.
For today, we see support on the NZD/USD at 0.8150, and resistance at 0.8250.
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Majors
In fairly contained trading overnight, European currencies were generally weaker while the JPY and ‘commodity-linked’ currencies, AUD, CAD and NZD were stronger.
As European finance ministers kicked off their latest meeting in Luxembourg the market mood sobered a bit. The Euro Stoxx 50 closed down 1.40% and the S&P500 is currently down 0.40%.
US trading is likely thin given the Columbus Day holiday. As the market awaits headlines of progress from the latest European discussion on Spain’s finances and closer banking cooperation the EUR drifted lower.
The release of data showing German industrial production fell -1.4%y/y in August likely did not help. The EUR/USD now sits just below 1.2980.
The GBP also fell from favour ahead of a slew of UK data releases tonight. Having failed to break key resistance at 1.6300 in late September the GBP/USD is now back at almost 1.6000.
Tonight, UK BRC retail sales, RICS house price, industrial production and trade balance data will be released. As always, the market will be looking for glimmers of hope for the beleaguered economy.
The EUR was also sold on crosses. Our flows show ‘short’ traders buying back AUD/EUR and NZD/EUR positions. This helped the antipodean currencies strengthen, taking the AUD/USD back up to above 1.0210. The key local release for the AUD today will be the NAB business confidence survey for September.
Elsewhere, it is relatively thin on US or EC data releases. Focus will be on headlines from the Eurogroup meeting and Chancellor Merkel’s visit to Greece tonight.
The US Q3 earnings season also unofficially kicks off when Alcoa reports earnings after the close of market tonight. In Q2 S&P500 earnings managed to cling on to positive growth. If positive earnings growth is not able to be maintained this would be significant. Corporate earnings growth has been a fundamental underpinning of the US recovery to date.
Event Calendar: 9 October: NZ, NIER QSBO, NZ, QV House prices; AU, NAB business confidence survey; UK Industrial production: GR, Merkel to visit Greece 10 October: NZ, Crown financial statements; AU consumer confidence; US, Fed releases Beige Book Economic Survey 11 October: NZ, Business PMI, NZ, Food rice index; NZ, ANZ-RM consumer confidence, AU, unemployment rate; IT, Italy sells bonds, US Trade balance 12 October: NZ, Non-resident bond holdings; Eurozone Industrial production; US University of Michigan confidence
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