By Kymberly Martin
NZD
The NZD declined relative to most of its peers over the past 24-hours. The NZD/USD currently sits at 0.8130.
The NZD continued its gradual descent, as demand for the more cyclical NZD, AUD and CAD appears to have diminished in recent sessions.
Still, the NZD/USD remains well within its trading range of the past two months. Currently sitting at 0.8130 we continue eye support at 0.8080.
With little on the local data front today, the key for the currency will be the release of the China PMI (see Majors) and general risk sentiment.
A positive outcome for the China data would help underpin the NZD, but likely see it weaken relative to the AUD (the key beneficiary of improving sentiment toward China demand).
The NZD/AUD drifted a little lower overnight to sit just above 0.7850 at present.
As the NZD weakened relative to its European peers it now sits at key support relative to the GBP, at 0.5100. Yesterday’s BoE minutes provided few surprises. They showed the committee voted 8-1 to halt further asset purchases, for now, as uncertainty remained regarding their impact.
The NZD/JPY has strengthened a little further. The market remains focused on the LDP party’s intentions to undertake policies to further weaken the currency if it were to win the December 16 elections.
The NZD/JPY, at 67.00, sits at its highest level since April this year.
As the US celebrates Thanksgiving day expect market activity to be thinner today.
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Majors
The JPY continued its recent weak performance overnight. The USD and EUR traded with some volatility but have returned to similar levels as yesterday morning.
The market seems a little in limbo as it awaits an eventual solution to Greek negotiations which stalled overnight.
A key stumbling block appears to be the unpalatable choice between official bondholders taking some form of loss, or permitting an extension to Greece’s plan to bring its debt-to-GDP ratio below 120%.
Despite the uncertainty, equity markets managed to eke out modest gains. Our risk appetite index (scale 0-100%) managed to claw its way back toward 75%.
When it initially appeared the Eurogroup talks were stumbling, the EUR/USD came under pressure falling to 1.2740. Overnight, however it clawed back most of its losses, returning to trade above 1.2820.
Conversely the USD failed to hold onto earlier gains that saw it touch above 81.20. It slipped during the early hours of this morning back to 80.90, showing little response to US data releases that were not far from expectation.
The JPY continued its steady descent overnight. Yesterday’s data showed weakness in Japanese exports, as the economy continues to struggle.
The LDP party continues to espouse its intention of setting an inflation of 2% if it wins government at the Dec 16 elections. More aggressive easing from the BoJ will likely be demanded. The LDP suggests it will also consider a fund to buy foreign bonds in an indirect form of currency intervention. The USD/JPY now trades at 82.40, its highest level since early April.
The AUD/USD continued to gradually soften overnight. The key test for the currency today will be the release of the China HSBC Flash Manufacturing PMI. The market will be looking to see if this can creep back into expansion (above 50) from its last reading, 49.5.
This will be followed by similar PMI readings from Europe tonight. Spain will also sell bonds, which should provide a good indicator of current sentiment toward European sovereign risk.
Other News:
*US University of Michigan Confidence (Nov F) 82.7 vs. 84.5 expected *Japan exports (Oct) fall 5.5%, imports fall 1.6%
*Bank of England minutes show committee voted 8-1 to stop expanding bond-purchase program
Event Calendar:
22 November: NZ migration; CH HSBC Flash PMI; EU Flash PMIs; 23 November: EU German IFO.
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