European PMI show euro economy contracted more than forecast; key US factory data also weak; eyes on Germany now

By Kymberly Martin


The NZD has traded a fairly steady sideways path over the past 24-hours despite weaker sentiment offshore.

This morning the NZD/USD sits around 0.8330. The EUR bore the brunt of negative sentiment toward the Eurozone overnight.

By comparison, the NZD and AUD escaped relatively unscathed.

The weakness in the NZD instilled by the previous day’s comments from RBNZ Governor Wheeler did not spill-over into yesterday’s trading.

Even the possibility of reduced QE from the US Federal Reserve, expressed in yesterday morning’s minutes, was unable to have a lasting impact on the NZD/USD.

Key near-term support remains around 0.8300. This has marked the lows of the currency’s trading range for the past six weeks.

The NZD/AUD was very range-bound over the past 24-hours in the absence of key local data releases.

Today, NZ credit card data is released, but is unlikely to be market moving. Across the Tasman, the RBA’s Stevens presents his semi-annual testimony in Canberra. Currently, the market prices a further 35bps of rate cuts from the RBA in the year ahead.

Expected divergence in RBA-RBNZ rate paths is a key reason for our constructive NZD/AUD view over the medium-term.


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The USD and the JPY were the strongest performers over the past 24-hours, as risk appetite soured.

Our risk appetite index (scale 0-100%) has pulled back from 83% at the start of the week, to sit at 74% currently. Overnight, the Euro Stoxx 50 closed down 2.30% and the S&P500 is currently down 0.80%.

Sentiment waned as European PMI data showed the European economy contracted more than forecast.

This came in the backdrop of a market still absorbing the message from yesterday morning’s Federal Reserve minutes. These hinted the Fed might slow the pace of its stimulus sooner than previously expected. Fed policy makers said they stood ready to vary the pace of their $85b/month bond purchases.

They expressed increased concern for the potential long-term effects of maintaining such loose policy.

Early this morning, sentiment was also not helped by the release of the US Philadelphia Fed business survey (-12.5 vs. 1.0 expected). The USD was the key beneficiary of the more subdued sentiment and possibility of reduced US QE. The USD index has moved up from 80.80 yesterday morning to 81.40 currently.

The JPY also seemed to take on its mantel of a ‘safe haven’ currency, strengthening versus its major peers. The USD/JPY has slipped to 92.90. The EUR/USD slumped after the release of weaker than expected February PMI data. The EU composite PMI fell to 47.3 (49.0 expected), reversing the previous improving trend. It showed activity remains firmly in contraction in the region. The EUR/USD has slipped from around 1.3280, to sit at 1.3180 this morning. The GBP/USD broke below the crucial support level, at 1.5290, yesterday morning, following the release of the US Fed minutes.

However, it managed to regain some composure overnight, finding support at 1.5150 before returning to trade at 1.5250 this morning.

Tonight, all eyes will be on the release of the German IFO business survey. Consensus expects a continuation of the uptrend that has been in place since late last year. Given its current sensitivity, the market is not well positioned to absorb any disappointment.

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