By Kymberly Martin
NZD
The NZD/USD showed fairly choppy trading on Friday, but ended the week just below 0.8370.
Squinting through the daily ups and downs, the NZD/USD had spent most of the new year consolidating around the 0.8400 level.
The currency continues to be underpinned by elevated global risk appetite and solid NZ domestic data. There is plenty to impact on the NZD this week.
Domestically, the key will be Thursday’s RBNZ meeting.
Globally, it is a busy data week. Along with numerous data releases, Wednesday’s US FOMC meeting will be important in setting the tone for the USD this week. If Chairman Bernanke attempts to dampen down expectations of an end to ultra-loose monetary policy by emphasizing the still weak labour market, USD weakness will likely result.
This will keep the NZD/USD elevated.
Support for the NZD/USD is eyed around 0.8340.
We continue to see key resistance for the NZD/USD at the mid-December/early-January highs above 0.8460.
NZD/AUD strengthening continued on Friday night, taking the cross to its highest level since October last year. At 0.8030, the cross now clearly has last September highs, above 0.8080, in its sights. With an Australia Day holiday today, it will likely be a quieter trading day for the AUD ahead of the NAB business survey to be released tomorrow.
Today, the December NZ PSI will be released to complement the PMI last week. We expect it to remain firmly in expansion territory in line with the previous reading (54.1). Only a left-of-field outcome is likely to significantly impact on the NZD.
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Majors
The EUR was the strongest performer on Friday and the JPY the weakest. Our risk appetite index remains at an elevated 85%.
Equities on both sides of the Atlantic put in another day of positive returns on Friday. The key driver of sentiment was the stronger-than-expected German IFO survey. The forward-looking business expectations data jumped to 100.5 (98.5 expected).
The EUR/USD moved up from 1.3360 to 1.3460, its highest level since late February last year.
The USD index was knocked a little lower as a result. It traded down from 80.00 to close the week just above 79.70.
JPY weakness resumed at the end of the week following the comments from the Japanese minister that the Yen at 100 would be “no problem”. The USD/JPY finished he week at 91.00, its highest level since mid-2010. For now, the market seems happy to run on expectations. If the rapid move is to be sustained, the Bank of Japan will need to start delivering actions to try and meet its new 2.0% inflation target.
Data on Friday showed that Japanese core inflation remains at -0.9%y/y.
The recent softness seen in the AUD continued on Friday. The AUD/USD eased a little lower to finish the week around 1.0420. Tomorrow’s NAB December business confidence survey will be important in the run-up to the finely balanced 5 February RBA meeting. Both conditions and confidence have been on a downtrend for the past three years. The November confidence reading was terrible, falling to -9, the lowest level since April 2009.
The market currently prices around a 35% chance of a cut at the February meeting. We see the chances as somewhat higher.
There are plenty of global data releases this week, with the highlights being the mid-week FOMC meeting and Friday’s all-important US payrolls data.
Today, US durable good and pending homes sales data will be released. German retail sales data is also due tonight.
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