By Mike Jones
NZD
It’s almost as if market participants decided to take a three day weekend. In an extremely listless offshore session, the NZD has been one of the few currencies to actually move. In fact, it has been the strongest performing currency over the past 24 hours.
It seems the weekend’s encouraging Chinese trade data has been enough to refresh investors risk appetite. Our index of such rose from 64% at the end of last week to 69% overnight.
This, combined with solid NZD/EUR demand, helped the NZD/USD grind up from below 0.8150 to around 0.8180.
More Greek aid delays (see Majors) and worrying signs of slowdown in the French and German economies have given the NZD/EUR some fresh legs.
Last night’s gains take the cross to around 0.6440. With momentum positive, we look for a re-test of last week’s 0.6500 highs in coming sessions, absent a shocking NZ retail sales number tomorrow.
We’re expecting a (seasonal) 0.7% fall in today’s NZ Food Price Index for October. We’ve already tabbed down our view on the Q4 CPI, to 0.2%, or 1.3%y/y (largely on the back of retreating fuel prices). So any food price undershoot would have us revising down even further.
However, tonight’s Eurogroup meeting and US fiscal cliff discussions will likely prove far more important for risk sentiment and the NZD/USD.
We ultimately expect a compromise to be reached on the fiscal cliff, but recent rhetoric suggests there is still a long way to go to get there. On the day, initial NZD/USD support should be found around 0.8130, with headwinds expected on any bounces to 0.8200.
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Majors
It’s been a dull start to the week in currency markets. Although, with US bond markets closed for Veterans Day, no economic data scheduled for release, and Europe waiting on the finance ministers’ meeting tonight, this shouldn’t come as any great surprise.
Equity markets are barely changed from Friday’s close, commodity prices are mixed and the EUR/USD is in a 1.2700-1.2740 holding pattern.
The ‘commodity’ currencies – AUD, CAD, and NZD – have outperformed, consistent with a decent fall in the VIX index (a proxy for risk aversion) overnight.
The only news of any note has been on Greece. As expected, the 2013 budget was passed yesterday, paving the way for the next (€32b) aid tranche. The Troika released their report overnight, calling for Greece to be granted a 2-year extension on austerity targets and again highlighting the enormous funding gap.
However, European finance ministers are not expected to make any firm decisions on aid disbursement tonight. It looks as if final decisions will be made late November/early December with Greece to finance bond maturities with short-term debt in the interim.
Along with deteriorating European economic data, more Greek delays and uncertainty will likely add to the headwinds facing the EUR/USD. Indeed, selling of EUR crosses was a feature of the overnight session.
Looking ahead, the next few days should deliver a bit more excitement to markets. The data calendar begins to heat up, with the German ZEW sentiment survey perhaps the pick of tonight’s offering. Given the nascent worries about a stalling in the German economy, the EUR/USD looks particularly sensitive to any downside misses.
There is little technical support for the single currency ahead of 1.2630. In the US, political negotiations around the fiscal cliff kick-off in Congress tonight.
Other News:
* Japanese preliminary GDP for Q3 falls 0.9%q/q (as expected), the first quarterly contraction since Q4 2011.
*Ratings agency Moody’s lowers its forecasts for G20 economic growth to 2.7% for 2012, and 3% for 2013.
Event Calendar:
13 November: UK RICs house prices; NAB business conditions; NZ food prices; UK PPI; UK CPI; EU German ZEW; 14 November: NZ quarterly retail sales; AU consumer confidence; AU wages; UK ILO unemployment; UK BoE inflation report; EU Italian bond auction; US retail sales; US FOMC minutes 15 November: NZ job ads; NZ manufacturing PMI; NZ ANZ consumer confidence; AU inflation expectations; EU Eurozone GDP; UK retail sales; EU Eurozone CPI; US Empire manufacturing; US CPI; US Philadelphia Fed index; 16 November: US industrial production.
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