By Kymberly Martin
NZD
The NZD/USD strengthened along with the AUD overnight, to trade just above 0.8400 this morning.
Overnight, risk appetite remained robust, with our index (scale 0-100%) holding at a healthy 84%. The NZD appeared relatively unscathed by the gyrations in northern hemisphere currencies.
The NZD/USD found resistance at 0.8430, before returning to trade just above 0.8400 currently. Key resistance remains at the mid-December/early-January highs above 0.8460.
The NZD was broadly stronger relative to its European peers. The NZD/GBP pushed on to greater heights. However, it failed to break above 0.5330 overnight, the level at which the NZD/GBP peaked in February 2012.
A break of this level would open the way for revisiting 2011 highs close to 0.5400. Currently the NZD/GBP sits around 0.5300.
The NZD/JPY extended its recent pull-back yesterday after the Bank of Japan disappointed markets’ lofty expectations (see Majors). The NZD/JPY sits back below 74.60.
The NZD/AUD continued its recent pattern of consolidation around the 0.7950 level over the past 24-hours. The key for the cross today will be AU CPI data released at 1.30pm (NZT).
A low-side surprise would likely elicit the greater response in the AUD, resulting in NZD/AUD outperformance.
There are no key NZ data or events scheduled for today.
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Majors
There was notable volatility in currencies over the past 24-hours. The JPY was the strongest performer. The ‘risk sensitive’ AUD and NZD also performed well.
Yesterday afternoon, Bank of Japan members conceded to intense political pressure, voting 7-2 to adopt a 2% inflation target (1% previously).
The call target rate was left unchanged and no buying of foreign bonds was mentioned. Consensus expectations for immediate additions to the asset purchase programme (APP) were disappointed.
The BoJ pledged “the total size of the APP will be increased by about ¥10t in 2014 and is expected to be maintained thereafter”.
All up, there were indications of further action in future, but little immediate gratification for markets. Consequently, the JPY/USD has strengthened over 1% during the past 24-hours, to sit around 88.70.
However, response to Japan’s intentions was swift. Germany’s lawmaker Meister suggested moves to weaken the JPY risk retaliation. Expect the global currency debate to continue.
The USD bore the brunt of JPY buying early in the evening. Later, the USD and EUR were whipped around by data releases on either side of the Atlantic.
The EUR regained some of its earlier losses after the release of strong German ZEW survey data. Though less important than Friday’s IFO survey the data showed a significant rebound.
The forward-looking German economic sentiment component rebounded to 31.5 from 6.9 (12.0 expected). The reading is the highest level since mid-2010.
The EUR/USD touched highs above 1.3360 before drifting off to sit around 1.3310 currently.
Conversely, the USD index touched lows around 79.70 overnight, but returned to trade at 79.90 this morning. US data was underwhelming, (Richmond Fed, existing home sales) temporarily knocking risk appetite and equities lower.
The S&P500 however has recovered, clawing its way into positive territory toward the close.
The AUD/USD was also well-supported overnight, rising from 1.0520 to sit around 1.0560 at present. Key for the AUD today will be the AU Q4 CPI release.
This is a crucial piece of the puzzle leading up to the next RBA meeting. A low-side reading would see a knee-jerk fall in the AUD as the market increases expectations of imminent RBA cuts.
Tonight, the UK will be in the spotlight with the release of Bank of England minutes and employment data. Tonight, further US housing data will be released. The Bank of Canada will also announce rates. Consensus expects the target rate to be maintained at 1%.
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