By Mike Jones
NZD
After sliding lower for most of yesterday, the NZD/USD bounced back up to 0.8370 overnight.
There wasn’t a lot going on in currency markets overnight. Economic data was thin on the ground, global equity markets shuffled sideways, and the fact most of Asia are off the desk this week kept volumes relatively thin.
Movements in currencies mainly reflected flows and positioning, rather than any change in global ‘fundamentals’.
The NZD drew some support from another push higher in the NZD/AUD. Not only did a bout of selling from speculative and leveraged players weigh on the AUD, but Australian interest rate markets yesterday ratcheted up RBA easing expectations (to 50bps worth of cuts).
From above 1.0320, the AUD/USD slipped below 1.0280 overnight, propelling the NZD/AUD to around 0.8140.
As outlined in our strategy note last week, we expect the NZD/AUD uptrend to gather pace in coming months. But in the short term, a strong NZ retail sales report on Friday may be needed for the cross to break above last week’s 0.8170 highs.
According to our currency flows monitor, our corporate clients have been net buyers of NZD/AUD in recent weeks. This tends to support our view that pull-backs towards 0.8050 will be short-lived.
For today, there are a few snippets of data to watch for. We expect a 0.3%m/m gain from this morning’s NZ electronic transactions data for January.
The January NAB business conditions survey will also be released at 1:30pm (NZT). Still, we expect another quiet day for the NZD/USD with the 0.8330-0.8400 range containing the price action on the day.
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Majors
It’s been a relatively quiet start to the week in currency markets. Most of the major currencies spent the night chopping around inside recent ranges as investors look ahead to the G20 meeting and US and European data due later in the week.
The USD garnered some modest support from another bout of USD/JPY buying, as Japanese policy makers continued their efforts to jawbone the JPY (details below). From below 92.60, USD/JPY was pitched above 93.40.
We suspect USD/JPY may struggle to breach last week’s 94.00 highs ahead of the G20 meeting. Japan is expected to come in for some attention at the G20 as policy makers seek to prevent any further escalation in the so-called “currency wars”.
Indeed, the newswires are reporting the G7, which met overnight, may issue a statement ahead of the G20 reaffirming its preference for currencies to be market determined and not targeted by government policy.
A step up in this sort of rhetoric may be enough to provide pause in the JPY downtrend.
The ECB’s Wiedman waded into the debate overnight, saying policy makers should not target a weaker EUR and “latest indicators don’t signal a serious overvaluation of the euro”.
The EUR outperformed as a result. EUR/USD bounced from 1.3360 to almost 1.3420 amid strong demand for EUR/GBP, EUR/AUD, and EUR/JPY.
Looking ahead, we suspect the 1.3350-1.3500 range will contain the EUR/USD in the lead-up to Thursday’s G20 meeting. Tonight brings just UK CPI (2.7%y/y expected) and a speech from resident FOMC hawk George.
Other News:
*Possible future BoJ Governor Kuroda says a 2% inflation target might be achievable in two years.
*UK press reports suggest the BoE will cut its growth outlook this week.
Event Calendar:
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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