Consensus expectations are for a rise in Australia's unemployment rate

By Kymberley Martin

NZD

The NZD/USD has treaded an unspectacular path over the past 24-hours to sit around 0.8170 at present.

Yesterday’s NZ crown accounts provided little to surprise the currency. The government’s operating deficit was shown to halve, close to forecasts. That said, returning to surplus by 2014/2015, as projected in the May 2012 Budget, still looks a challenge to us.

The NZD/USD continued to find good support at the 0.8150 level yesterday, before touching above 0.8200 overnight. It remains near the bottom of its current range.

A shift down from this range would likely be precipitated by a sharp reassessment of still healthy global risk appetite. A further boost to the currency may take a positive domestic surprise.

There are no immediate catalysts on the horizon though we will be looking to see if today’s NZ PMI can improve on last month’s (47.2)  poor reading (a reading below 50 indicates the manufacturing sector is contracting).

The NZD was a little weaker on the crosses. The test for the NZD/AUD today will be the all-important AU labour report (12.30pm NZT). Consensus expectations are for the unemployment rate to tick up to 5.3%, from 5.1% previously.

A better than expected outcome would likely continue the recent NZD/AUD downshift near-term. However, we remain constructive on the cross over the medium-term, with an end of year target of 0.8200.

For the NZD/USD we continue to see near-term support at the 0.8150 level, and resistance at 0.8220.

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Majors

Currencies traded fairly tight ranges over the past 24-hours. The AUD was the strongest performer. Our risk appetite index (scale 0-100%) has sobered a little to 73%, though is still at a very healthy level.

Equity markets were a little softer overnight (Euro Stoxx 50 and S&P500 -0.60%).

In the absence of key data releases the market’s attention has turned to the US Q3 earnings reporting season. So, far with 31/500 companies reported, earnings growth is only just being recorded, at 0.6%.

Concerns are simmering this may be a weak earnings season, undermining a key support for the fragile US economy. The market is also extrapolating company earnings to global concerns. For example, aluminium company Alcoa downgrading its outlook for global demand has reinvigorated China growth concerns.

In this backdrop, currencies traded relatively tight ranges. The USD index traded from 80.10 down to 79.90, while the EUR/USD crept up from 1.2870 to 1.2990.

The AUD was the strongest performing major currency over the past 24-hours. Yesterday afternoon, the Westpac AU consumer confidence index showed a tick up from 98.2 to 99.2, possibly influenced by the recent RBA rate cut.

The AUD/USD inched up from 1.0200 to around 1.0240 overnight. In the past week it seems to have formed strong support just below the 1.0200 level. Still the test will come with today’s all-important labour force report, for September.

Tonight, the ECB publishes its economic survey for October. The Fed’s Plosser also speaks on the economy. Although he is a non-voter and a known ‘hawk’ his comments may attract some attention.

Event Calendar: 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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