No tangible progress in US fiscal cliff debate means US$ has difficulty finding friends

By Kymberly Martin


The NZD/USD has traded a little higher to sit around 0.8240 this morning.

The NZD has been carried along on the coat-tails of the AUD over the past 24-hours (see Majors), in the backdrop of fairly directionless markets.

The NZD/AUD cross is a fraction weaker this morning, trading just below 0.7870. After its sharp fall early last month, the cross now appears to be consolidating above the 0.7850 level.

The key tests to this new range will come from today’s AU GDP data, and tomorrow’s RBNZ meeting. Key resistance remains at 0.7900.

The GDT diary auction early this morning showed average prices down 2% from the previous fortnightly event. This was within the bounds of fluctuations we would expect.

It may have partly reflected an unexpected increase in volume this auction. Combined with the positive result seen in yesterday’s ANZ commodity price index (up 1% in November) this confirms our view that NZ commodity prices are broadly consolidating recent gains.

We continue to believe the RBNZ will be more tolerant of the persistently high NZD, in the backdrop of supportive commodity prices.

That said, we suspect the persistently strong currency will come in for a mention at Thursday’s RBNZ meeting.


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Markets remained somewhat directionless overnight. The USD was broadly weaker against the backdrop of little progress in the US fiscal cliff negotiations.

Once again, European equity markets have managed to eke out modest positive returns, even as US equities are struggling to keep their heads above water. Our risk appetite index (scale 0-100%) is clinging on above 70%.

However, with no tangible progress yet recorded in the US fiscal cliff debate the USD had difficulty finding friends overnight.

Still benefitting from some recent optimism toward the Greek bond buyback and Spanish bank recapitalization, the EUR/USD traded up to 1.3090 overnight. Key resistance, that capped its gains in September and October, at 1.3140, is now within sight.

Yesterday, the RBA delivered a 25bps rate cut and maintained an easing bias, as expected. Still, contrary to our expectations the AUD/USD did not slip in response. It in fact gapped higher, before climbing gently overnight to sit around 1.0472 currently.

The RBA’s statement reiterated many previous concerns without placing any great emphasis on the negatives. The market’s response appears to be one of ‘no news is good news’.

There may have even been relief from some who had begun toying with the idea of a 50bps cut. Now, the AUD/USD is sitting right at the top of the range it has traded for the past month or so.

Today, the key for the AUD will be the AU Q3 GDP release. Consensus expects a 3.1%y/y outcome.

Elsewhere, a slew of services PMI data will be released today, to compliment the manufacturing components just released. We also get the US ADP employment report, which generally helps colour market expectations for the all-important US payrolls data on Friday.

Event Calendar:

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

All its research is available here.

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