By Mike Jones
NZD
Another attempt by the NZD/USD to test the water below 0.8200 has run out of steam.
A late surge in US stocks and a strop higher in NZD/EUR lifted the currency back up to almost 0.8240.
Rhetoric around the US fiscal cliff was responsible for most of the volatility in financial markets overnight. The gloom pervading the early part of the session was reversed after US Speaker Boehner said he is “optimistic” a fiscal crisis can be averted.
Rebounding equity markets and fading risk aversion encouraged investors to re-establish long positions in ‘risk’ currencies, and it wasn’t long before the NZD and AUD were leading a bounce-back across the majors.
Interestingly, last night’s outperformance of the ‘commodity-linked’ NZD and AUD comes despite a plunge in oil and gold prices.
This likely reflects the fact the drivers of the sell-off appear to be technical in nature, rather than any fundamental concerns about global demand.
Next week’s ANZ commodity prices index is likely to show the upturn in world prices for NZ’s commodity exports continuing to gather steam. There is a good chance today’s ANZ business survey (the rebadged NBNZ survey) shows net confidence improving from last month. Indeed, this was the message from the more timely BNZ Confidence Survey.
What’s less certain is what occurs in the ANZ survey’s own-activity outlook. Anything less than around 20.0 (25.5 in October) in this index would call into question our modest GDP growth forecasts.
The NZD is unlikely to react to an unchanged or slightly improved outturn. But sharp falls in confidence and/or the activity outlook could see the NZD/USD dragged back towards 0.8200.
Still, any near-term NZD/USD declines will be limited to support at 0.8145 in our view. Initial resistance will be encountered at 0.8255, with stiffer headwinds expected around 0.8315.
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Majors
It’s been another quiet night in markets. Currencies continue to bounce around inside familiar ranges on thinning volumes.
An early rally in the USD faded to leave the USD index close to flat for the night. Volatility in equity markets has provided most of the direction for currencies over the past 24 hours. There has been no economic news of any note.
After opening deep into the red (S&P500 down around 1%), benchmark European and US equity indices are back to around flat on the day. The early weakness looks to have been a reflection of both fiscal cliff worries – Senate majority leader Reid noted the lack of progress – and a plunge in the price of gold.
Indeed, the sharp 1.3% decline in the gold price is the largest in almost a month. Most other commodity prices have dropped in sympathy – oil prices are off a bit over 1% around US$86/barrel.
Market chatter suggests heavy selling by algorithm funds is behind the weakness in gold, although a thin market likely exacerbated the move. In other words, it was driven by technical factors, rather than any fundamental concerns about the global economy.
Comments from US House Speaker Boehner that he was optimistic a fiscal cliff deal could be reached underpinned the late rebound in stocks and general sentiment. Currencies have followed suit.
After sliding to almost 1.2880, the EUR/USD has clawed back to around 1.2940. We still think near-term EUR/USD losses will be limited to support at 1.2875. A similar ‘V-shaped’ decline-then-rebound pattern is evident in the GBP, AUD, NZD, and CAD.
Last night’s price action again reinforces how sensitive market sentiment is to news on the fiscal cliff. Despite the upbeat rhetoric, we are still a long way off a deal. Indeed, we doubt agreement will be reached before mid-December at the earliest.
As a result, we can expect ongoing choppy price action as traders react to headline and rhetoric. This morning’s (8am NZT) Fed Beige Book should suggest modest expansion in the US economy is continuing. The fact the housing market is picking up steam will likely receive another special mention. Fiscal cliff concerns will no doubt feature, but these may be balanced by easing uncertainty over Europe and the US election. Other news: Event Calendar:
Other News:
* RBA watcher Terry McCrann calls for a December RBA rate cut.
* European peripheral spreads continue to tighten following the latest Greek bailout deal – Italian 10-year yields fell to 18-month lows below 4.6% overnight.
* October US new home sales slip 0.3%, against expectations for a 0.3% increase.
* US Treasury says the CNY remains undervalued but China is not a currency manipulator.
* BoE Deputy Governor Bean says QE is less effective now than during 2009, but door is still open to do more.
Event Calendar:
29 November: US Beige Book; NZ ANZ business confidence; EU German unemployment; US GDP; US pending home sales;
30 November: NZ building permits; JN jobless rate; EU German retail sales; US personal income; US Chicago PMI;
1 December: CH manufacturing PMI.
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