By Kymberly Martin
NZD
It has been another fairly uneventful 24-hours for the NZD. Slipping as low as 0.8170 yesterday afternoon it has returned to trade just above 0.8210.
Market risk sentiment remained fairly stable, at relatively high levels overnight, helping to underpin the NZD. The NZD/USD remains well within the 0.8080-0.8350 range that has now contained the currency for almost three months.
On the crosses, the NZD traded fairly tight ranges overnight. The NZD/AUD traded around 0.7880, the level it now maintains as we head into today’s RBA meeting. This is the key event risk for the cross today.
The market is now 90% priced for an RBA cut today. We also expect a cut to be delivered. Assuming it is, with a firm easing bias still in place, we expect the knee-jerk response will see a higher NZD/AUD.
The key will be whether this is sufficient for the NZD/AUD to overcome solid resistance around 0.7900 and resume its gradual uptrend.
Locally, more timely information on export prices will come from today’s ANZ commodity price index. This will be followed by the GDT dairy auction, in the early hours of tomorrow morning.
We expect both to paint a picture of commodity prices consolidating their recent gains. If so, we suspect the RBNZ will be more tolerant of the persistently high NZD.
That said, we suspect the stubbornly high NZD will come in for a bit of a mention at Thursday’s RBNZ meeting.
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Majors
The USD index was broadly weaker overnight, as risk appetite remained broadly stable.
Overnight, our risk appetite index (scale 0-100%) remained around 74%, the level it has held for the past fortnight. With the exception of the Spanish IBEX, European equity markets recorded modest positive returns, though the S&P500 is currently slipping into the close.
A bid tone for the EUR was apparent. Headlines stated Spain expects the ESM funds for its Bank Recapitalisation on Dec 12.
In addition, investment bank Credit Suisse announced it will start charging negative interest rates on balances held in Swiss francs.
The implication that this may lead the way for Spain to now formally apply for sovereign funding, and that other banks may follow C.S’s lead, resulted in demand for the EUR. The EUR/USD is currently trading just below 1.3070. Key resistance for the currency is now eyed at 1.3140.
The GBP was carried along on the coat-tails of the EUR overnight. It was also assisted by a better-than-expected manufacturing PMI for November (49.1 vs. 48.0 expected).
Although this shows UK manufacturing still in contraction, it sits well above the EU equivalent reading (46.2). The GBP/USD climbed steadily from 1.6020 to above 1.6100.
Yesterday’s AU data releases again showed an economy that is losing momentum. October retails sales disappointed (0.0%m/m vs. 0.4% expected) adding further weight to the expectation for a RBA rate cut today.
The AUD/USD gapped lower on the data but crept back overnight to sit just above 1.0420. The market is now 90% priced for an RBA cut today.
Clearly non-delivery would result in the biggest knee-jerk reaction (higher) of the AUD. Still, if a cut is delivered as we expect, and a clear easing bias is maintained, the AUD/USD will likely slip lower on the day.
Tonight, the Bank of Canada also announced rates. Elsewhere, there are no key data releases so expect markets to be driven by headlines relating to the European debt crisis and the US fiscal cliff negotiations.
Other News:
* JPMorgan Nov global PMI rises to 49.7 from 48.8 in October
* Greece announces it has begun the process of buying back some of the bonds it issued earlier in the year, which is one of the conditions of its recently agreed bailout package
Event Calendar:
4 December: NZ ANZ commodity prices; AU current account; AU building approvals; AU RBA decision; CA BoC decision;
5 December: NZ GDT dairy prices; NZ Crown accounts; NZ construction; AU GDP; EU retail sales; US ADP employment; US factory orders;
6 December: RBNZ policy decision and statement; AU employment; UK BoE policy decision; EU ECB policy decision; US jobless claims;
7 December: NZ wholesale trade; NZ ANZ consumer confidence; EU ECB’s Draghi speaking; US non-farm payrolls
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