By Kymberley Martin
NZD
The NZD/USD is a little lower this morning, as risk appetite waned overnight. It sits around 0.8180.
Yesterday’s QSBO confirmed our suspicions that Q3 GDP was likely a little soggy. However, it did little to dampen expectations of modest growth ahead.
The detail also showed capacity constraints are poised to bite, suggesting the RBNZ can not be complacent regarding current low inflation readings (We get the Q3 update of NZ CPI next Tuesday).
The NZD took the data release in its stride, moving a little higher yesterday afternoon. Overnight, the NZD/USD slipped as risk appetite waned, finding support at the 0.8160 level.
The NZD was fairly range-bound relative to the moribund GBP, but gained on the broadly weaker EUR (see Majors). The NZD/EUR has moved above 0.6350.
The NZD/AUD was on a steady downward trend overnight to sit just above 0.8010, currently.
For now, the improvement in NZ-AU interest rate differentials, that has been assisting the cross, has run out of momentum. The market already prices convergence of RBNZ and RBA cash rates by late next year.
Ultimately we see the RBNZ cash rate moving above the RBA’s in early 2014. This should help provide medium-term support for the cross.
For the NZD/USD we continue to see near-term support at the 0.8150/0.8160 level, and resistance at 0.8220.
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Majors
Risk appetite eased a little overnight. The USD strengthened along with the ‘safe haven’ JPY.
Our risk appetite index (scale 0-100%) has down-shifted from Friday’s high at 79%, to sit at 74%. The Euro-Stoxx 50 closed down 1% while the S&P500 is down 0.70%. As the Q3 reporting season kicks off, expectations for US earnings are muted. The IMF also published its latest outlook, downgrading global growth for 2012 and 2013.
During Chancellor Merkel’s visit to Greece she maintained pressure for austerity saying, “I want Greece to remain in the euro”. “A lot has been done, much remains to be done”. From the Eurogroup meeting there were few headlines of substance. The group continued to debate the outlook for Greece and was resistant to any haircut on official loans to the country. The EUR slumped from above 1.2980 to sit just above 1.2860.
The USD was broadly in favour, along with the ‘safe haven’ JPY. The USD index has moved back above 80.00.
There was little in UK data releases yesterday to buoy the GBP. Industrial production was seen declining 1.2%y/y in August. The total trade balance was more negative than expected at -£4169m.
The RICS house price index showed that a net -15% of surveyors reported a rise in prices relative to a fall. The small bright spot was BRC retail sales data that rose 1.5%y/y in September (-0.2% expected). The GBP/USD continued its recent sharp decline to sit around 1.5990, its lowest level since early September.
The AUD/USD has fluctuated around the 1.0200 level over the past 24-hours. The AU NAB business survey showed conditions fell to -3 in September well below the long run average of 1. This is consistent with GDP growth of 2.75%-3.0%, a bit below long-term trend. The market continues to look for around 90bps of further rate cuts from the RBA to provide some relief to the economy. Today, the AU consumer confidence survey will be released.
Tonight, the US Fed releases its Beige Book assessment of the economy. Normally, this does not elicit a short-term response in currency markets. However, it will be important for forming longer-term expectations of Fed policy. This is particularly important now the Fed has stated that accommodation will be maintained “for a considerable time after the economy recovers”.
Event Calendar: 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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