By Kymberly Martin
NZD
The upward momentum in the NZD ran out of steam on Friday night. The NZD/USD ended the week at 0.8440.
Friday’s NZ retail sales data continued the theme of stronger-than-expected NZ data last week. The 2.1% q/q result was its strongest quarterly growth in six years.
Strength was wide-spread though there were signs low interest rates and a stronger housing market helped to drive durables spending. The data initially launched the NZD/USD higher, to around 0.8530.
But overnight, the strength was not sustained, as risk appetite was a little more muted and the NZD followed a weaker AUD lower (see Majors).
The NZD was also generally weaker on the crosses on Friday. The NZD/GBP pulled back from new highs above 0.5500 to end the week at 0.5440.
The NZD/AUD also dribbled a little lower on Friday night, pulling back from 2 ½ year highs above 0.8230. Tomorrow’s RBA minutes will be important for the cross this week.
These will help inform expectations for future rates cuts that currently stand at 36bps for the year ahead. We see the risks as titled toward more rate cuts than priced, and more rate hikes from the RBNZ than is currently priced. This is a key reason for our medium-term constructive view on the NZD/AUD.
Today’s BNZ Performance of Services index is not normally a market mover. However, to be consistent with recent data trends it could be expected to move more comfortably above the breakeven mark (50) from the 51.5 reading in December.
Later in the week, RBNZ governor Wheeler is scheduled for an ‘off-the-record’ speech to the NZ employers manufacturing association. In this context, the currency is likely to receive some air time.
Key resistance for the NZD/USD remains at 0.8530. Near-term support is eyed at 0.8400.
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Majors
JPY weakness resumed on Friday. The AUD, CAD and NZD were also softer relative to the USD.
Our risk appetite index (scale 0-100%) remains at a healthy 83% but equity markets struggled to stay in positive territory on Friday.
The Euro Stoxx 50 closed down 0.80%. Despite a bit of choppiness the USD index ended the night only a fraction higher at 80.50. The EUR ended the week, almost unchanged on the day, at 1.3350.
The GBP was knocked lower on Friday night after soft UK retail sales data for January (-0.5% vs. 0.5% expected). The GBP/USD soon found support around the 1.5460 level.
This proved an important area of support mid last year. The GBP/USD ended the week around 1.5520.
The JPY weakened on Friday. This took the USD/JPY back up to 93.70. The currency appears to be going through a period of consolidation after its rapid weakening since last October.
Recent G7 communications have taken the wind out of the JPY downtrend. It will likely take the changing of the guard at the Bank of Japan, and more direct action in pursuing the new 2% inflation target, to launch the next down-leg in the currency.
The AUD was weaker on Friday. RBA assistant governor Kent commented the boom in AU mining investment was expected to peak this year.
Despite continued strong demand from China, the expected increased supply would see commodity prices gradually declining in the next few years.
Tomorrow’s RBA minutes will provide some more colour on how the RBA is viewing the maturing of the mining cycle, and prospects for further rate cuts. Currently the market prices a 34% chance of a rate cut at the March meeting. The AUD/USD finished the week at 1.0300.
Key data releases this week will be Germany’s ZEW survey tomorrow, complemented by the IFO survey on Friday.
Eurozone PMI data is released on Thursday. Also keep an eye on Italian political polls in the lead up to elections at the end of the week.
They key US data release will be Tuesday’s and Wednesday’s housing data and Thursday’s Philadelphia Fed survey.
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