By Mike Jones
NZD
After marching higher on Thursday, the NZD has paused for breath over the past 24 hours. At a shade under 0.8200, the NZD/USD is barely changed from levels prevailing this time yesterday.
Yesterday’s Chinese data download was broadly supportive of the NZD. Sure, 7.4% annual GDP growth was the lowest since Q1 2009.
But the quarterly growth rate was surprisingly strong at 2.2%, up from 2.0% in the Q2, and 1.5% in Q1. This suggests that short-term growth momentum has actually accelerated since early 2012.
We’re left mulling upside risk to our 7.5% 2012 growth forecast. Note also that the CNY hit a fresh high against the USD yesterday, suggesting an increasing flow of offshore cash into China. USD/CNY briefly traded below 6.25.
If Chinese activity has indeed bottomed, we can expect additional support for the NZD from higher commodity prices and improved trading partner growth. This outcome is already built into our forecasts for the NZD/USD to hold up at around current levels through to mid-2013.
Today’s credit card billings (3pm NZT) and migration and tourism data (10:45am NZT) may prove of passing interest to the currency.
We’re looking for further signs of retail momentum from the credit card numbers, but are bracing for a a big (25%?) annual fall in September tourist arrivals, as the Rugby World Cup boost to last year’s figures drops out of the annual total. Lastly, net immigration is likely to remain fundamentally weak.
Unless there are any huge surprises in the data or tonight’s EU Summit (doubtful – see Majors), the NZD/USD looks set to see out the week in the familiar 0.8140-0.8240 range.
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Majors
It’s been a night of pause and consolidation across the major currencies. The EUR/USD simply shuffled sideways in a narrow 1.3080-1.3130 range.
Broadly speaking, markets have retained their upbeat tone of recent days. A successful Spanish auction, positive UK retail sales data, and more encouraging economic signs out of the US have all helped in this regard.
The VIX index (a proxy for risk aversion) remains at very low levels around 15% (against a long-run average of 23%), suggesting investors remain very much in ‘risk-seeking’ mode.
European equity markets notched up small gains. However, US stocks are on the back foot after a leaked earnings announcement from Google has seen the tech stock slump around 9% (it is now in trading halt until after the close). The S&P500 is currently down 0.4%.
There was the usual chatter and posturing from EU leaders as the two-day EU summit kicked off (the 22nd in the current crisis). However, currency markets for the most part have looked the other way. We doubt any concrete decisions are likely to be made at the Summit. There is no real pressure on EU leaders and the history of the EU crisis suggests pressure is needed to get progress.
The more important Greek/Spain decisions look set to be made in November, even if they may have already been made behind closed doors. Indeed, overnight reports suggested Germany has already decided Greece will get the next €31.5b aid tranche.
We believe recent constructive news out of Europe, improving US data, and bottoming Chinese activity all have the potential to extent the current rally in ‘risk-sensitive’ assets.
Given this, and the growing probability of an Obama victory in the US Presidential race, the USD is expected to struggle in the short-term. A return to the 78.60 September lows on the USD index looks likely in coming sessions.
Other news:
* The US Philadelphia Fed index returned to positive territory for the first time since April (+5.7 vs. 1.0 expected). US weekly jobless claims data were not quite as positive (388k vs. 365k expected), but the trend is still lower.
*UK retail sales rise 0.6%m/m in September (ex-fuel), double analyst expectations.
Event Calendar:
19 October: NZ net migration; US home sales.
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