By Mike Jones
NZD
After shedding almost a cent on Thursday, the NZD/USD regathered its poise on Friday night. Heartening US and Chinese trade data buoyed global growth sentiment, helping to lift the NZD/USD back up to around 0.8350.
Despite Friday’s gains, the NZD/USD finished the week slightly lower than where it began. This mostly reflects the negative impact of Thursday’s surprisingly large decline in NZ employment growth (-1%q/q vs. +0.4% expected).
However, NZD/USD fundamentals remain robust and we don’t expect to see sustained declines anytime soon. In fact, we have just revised our NZD forecasts up.
As noted on Friday, we now see the NZD/USD at 0.8700 by year-end. A push up to 0.9000 can no longer be ruled out.
This more bullish NZD view reflects our stronger NZ economic growth forecasts for 2013 and 2014, the improving global backdrop, and contrasting monetary policy expectations.
Still, our expectations about the timing and duration of the NZD cycle haven’t really changed. In essence, a higher ‘peak’ in the NZD/USD means a harsher correction is likely to follow in 2014.
For this week, there are plenty of NZ data items on offer. But they are mostly of second tier importance and unlikely to matter much for the NZD.
Friday’s Q4 retail trade figures could be different though. Our economists have bumped up their pick to a hefty 1.5% in volume terms, with risks tilted toward an even bigger gain. This sort of the result would likely add further support under the NZD.
The global event calendar is fairly quiet early in the week before US retail sales, Eurozone GDP, and the G20 meeting hopefully jazzes things up later in the week.
However, we can’t help but think we’re in for a week of consolidation, particularly with much of Asia out for Lunar New Year.
Moreover, our momentum model suggests NZD/USD momentum has flipped back to neutral, from positive.
Dips below 0.8300 should continue to attract buyers, with 0.8280 still the key near-term support level. Resistance around 0.8450 should continue to cap short-term bounces.
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Majors
Financial markets finished last week in a slightly more upbeat frame of mind. Global equity markets recouped some of their post ECB losses, the VIX index of risk aversion declined, and the USD dribbled lower against most of the major currencies (EUR being the most notable exception).
Encouraging trade data out of the US and China helped restore some of the market’s early-week optimism. However, the impact of Chinese New Year means January’s 25%y/y surge in Chinese exports should be interpreted with some caution.
Nonetheless, the ‘risk-sensitive’ NZD and AUD were happy to head higher on the back of the more positive equity market sentiment.
However, the JPY was the surprise outperformer. USD/JPY slipped from 93.60 to around 92.40. This appeared to reflect comments from Japan Finance Minister Aso that the JPY had weakened more than expected.
Position squaring ahead of this week’s Chinese New Year holidays may have also contributed.
The comments from Mr Aso look to be an attempt to diffuse tensions around competitive currency devaluations ahead of this week’s G20 meeting.
Indeed, the so-called ‘currency wars’ look set to dominate the talks, with Japan perhaps most in the firing line. In our view, there is no ‘war’, and we doubt we’ll see anything but the usual talk fest and pleasantries from the G20.
Aside from the G20, the US will be in focus for markets this week. Not only are US retail sales due on Thursday, but there’s a slew of Fed speakers set to impart their (often disparate) economic views on the market.
In the UK, the Bank of England’s Quarterly Inflation Report will likely see inflation forecasts revised higher. We’d fade any corresponding GBP bounce. In Europe, Thursday night’s Q4 GDP figures will be the highlight.
A negative number is now fully expected and hence shouldn’t trouble the EUR. The focus has increasingly moved to whether we’ll see growth in Q1.
Other News:
*Chinese exports surge 25%y/y (17.5% expected); imports rise 28.8%y/y (23.5% expected).
*US trade deficit narrows to US$38.5b vs. US$46b expected.
*Emerging details from the unfolding Spanish political scandel suggest PM Rajoy may have been involved in a ‘slush fund’.
*Popularity of former Italian PM Berlusconi continues to rise.
Event Calendar:
11 February: NZ house prices;
12 February: NZ electronic card transactions; UK RICS house prices; AU NAB business confidence; UK CPI; US Fed’s George speaks;
13 February: US Fed’s Plosser speaks; US Fed’s Lacker speaks; EU industrial production; UK BoE Inflation Report; US retail sales; Fed’s Bullard speaks;
14 February: NZ PMI; JN GDP; NZ ANZ consumer confidence; JN BoJ; EU GDP; G20 meeting begins;
15 February: NZ retail sales; UK retail sales; US industrial production; Fed’s Pianalto speaks.
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