Q3 current account narrowing seen as a pause in an otherwise broader deterioration of external accounts

By Kymberly Martin


The NZD/USD has continued to drift a little lower despite solid global risk appetite overnight. The NZD/USD sits around 0.8370 this morning.

The currency showed little response to yesterday’s release of NZ current account data. This showed the deficit at 4.7% (4.8% expected by market).

We view Q3’s result essentially as a pause in a broader deterioration in the external accounts.

We see the current account deficit heading through 6% of GDP in 2013, which may start to attract some attention from currency markets and rating agencies.

For now, the rapid surge higher in the NZD since the start of December appears to have run out of steam, as the NZD/USD has dipped back below the key 0.8400 level.

The focus for the currency today will be the release Q3 GDP and the ANZ business survey.

Despite earlier misgivings we now expect GDP to come in at a respectable 0.5% (2.6% annual). Consensus is looking for 0.4%. A result close to our expectation should help underpin NZ yields and the NZD.

On the day, support for the NZD/USD is eyed at the overnight lows of 0.8350. Resistance is seen at 0.8400.

The NZD has continued to drift lower on the crosses especially relative to its European peers. The NZD/EUR found support at a key level just below 0.6300 overnight. A re-test of this level would put the next support level at 0.6230 in sight. However, a solid NZ GDP number today would likely help shore up the NZD on the crosses also.

The recent surge higher in the NZD/JPY lost some steam overnight, as the JPY stabilized. The key for the JPY today will be the Bank of Japan rate decision (see Majors).


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The USD slipped a little further relative to European peers. The AUD and NZD were the weakest performers over the past 24-hours.

Solid risk appetite overnight further boosted European equity markets, though US equities are a little more subdued this morning. Our risk appetite index (scale 0-100%) has moved up to 79%, close to its highs for the year.

The German IFO survey of the economy showed a mild slip in the current assessment (from 108.1 to 107.1). But more importantly the forward-looking expectations components rose to 97.9 from 96.4.

The EUR/USD traded with some volatility. It touched above 1.3300 early this morning before returning to trade at 1.3250. Still, its recent uptrend continues, with the next key resistance level seen at 1.3380.

The softening of the JPY continues. The USD/JPY has moved up to almost 84.50. Today, the Bank of Japan announces its target rate. Further quantitative easing in the vicinity of ¥5-10t increase is expected to be announced.

This will fall well short of the type of aggressive response recently elected P.M Abe will be calling for if he implements his 2.0% inflation target for the BoJ as planned. Overnight, Abe was reported as saying “monetary policy alone is not enough to correct strong yen”, so expect continued focus on the JPY in weeks to come.

Despite solid risk appetite overnight, the ‘risk sensitive’ AUD and NZD have not been key beneficiaries. The AUD has slipped a little lower to sit around 1.0500. Still, from a technical perspective it does not appear the uptrend that has been in place since early October has been broken.

The USD index is a little lower this morning, mostly relative to its European peers. Negotiations over the fiscal cliff continue to drag on.

Overnight the USD index rebounded from a key support level at 79.00 to sit at 79.30 currently.

Tonight, the market will be looking for any further signs of progress in negotiations, as well as following focusing on key US data releases. These will the Philadelphia Fed survey and existing homes sales.

Event Calendar:

20 December: NZ GDP; AU RBA Bulletin; JN BoJ decision; UK retail sales; US jobless claims; US Philly Fed; US home sales;

21 December: NZ net migration; NZ credit card spending; UK public finances; US durable goods orders; US Chicago Fed index.

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