By Kymberly Martin
NZD
The NZD was unable to maintain upward momentum on Friday, returning to trade around 0.8370 currently.
The NZD/USD failed to break above the key December high of 0.8475 on Friday. Rather, it was on a steady downtrend for most of the day and night.
The NZD also weakened on all the key crosses. Most notably the NZD/EUR slipped from around 0.6370 to sit around 0.6280 currently.
The NZD/AUD pulled back from above 0.7980 to sit just below 0.7950 at present. The week ahead will provide plenty to impact on the cross.
Domestically, tomorrow’s Quarterly Survey of Business Opinion and Friday’s CPI will help inform interest rate expectations.
Thursday’s AU employment data will be equally important in influencing expectations for RBA cuts in the year ahead. In addition, Friday’s Chinese data dump will be crucial in providing an update of the state of this growth engine and by implication demand for AU commodities.
Confirmation China growth is back on a more steady footing should go some way toward offsetting concerns for AU domestic weakness.
For today, NZ card spending data will be released along with REINZ housing data. There are plenty of data on both sides of the Atlantic this week to drive risk appetite more broadly (and by implication demand for the ‘risk sensitive’ NZD).
Tonight, US Fed speakers will be out in force, including Chairman Bernanke. Key resistance for the NZD/USD remains at 0.8475. Support is eyed around 0.8330.
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Majors
The USD index weakened a little further on Friday. The EUR was the strongest performing currency and the NZD and AUD the weakest.
The key release for the night was US trade data. This showed the November trade balance fall to -$48.7b (-$41.3b expected). This will act as a drag on US Q4 GDP. The USD index slipped on the results, to trade below 79.60.
The EUR was a key beneficiary, continuing its recent uptrend. The EUR/USD broke through key resistance at 1.3310. Trading just below 1.3350 the EUR/USD is now at its highest level since April last year.
Equity market on either side of the Atlantic however held onto recent gains. Our risk appetite index (scale 0-100%) also remains at a very healthy 82%. But this was not sufficient to prevent a pull-back in the ‘risk sensitive’ AUD and NZD.
The AUD failed to break above key resistance at 1.0600, pulling back to sit just below 1.0540 over the course of the day.
The most important local event for the AUD this week will be Thursday’s labour force data. Our NAB colleagues look for a 5K fall in jobs. With the participation rate unchanged at 65.1% this should see the unemployment rise to 5.4% in December (5.2% previously).
This is in line with market expectations, helping underpin expectations (market and our own) for a further 25-75bps of RBA rate cuts ahead.
The GBP did not follow its European cousins higher on Friday. Weaker-than-expected UK manufacturing data for November (-0.3%m/m vs. 0.5% expected) helped set the GDP/USD on a soggy path. It closed the week around 1.6120.
Meanwhile the JPY continued its recent path of weakness. During the afternoon, PM Abe reiterated his key message that bold monetary easing is essential for beating deflation and the strong yen.
Still, market expectations for easing are now very high, so some delivery from the BoJ will be required to sustain the recent weak JPY trend. The USD/JPY ended the week at 89.20, its highest level since June 2010.
Aside from a wide range of US data releases this week, there is also an abundance of Chinese data on Friday.
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