By Kymberly Martin
NZD
Over the past few sessions the NZD has been consolidating above 0.8350. It now sits at 0.8380.
In thin Easter trading the NZD/USD has shown little momentum over the past few days. It benefitted early this morning from USD selling after a weaker-than-expected US ISM number (see Majors).
Trading on the crosses has also been without too much drama over the Easter period. The NZD/AUD has traded a tight 0.8020 to 0.8050 range since the latter part of last week.
Today, the key for the NZD/AUD cross will be the RBA meeting (4.30pm NZT). The market currently prices a small (10%) chance of a cut today, but prices 25bps of cuts in the year ahead.
Non-delivery of a cut today may see the NZD/AUD slump initially. More important for the cross over the medium-term will be the rate trajectory ahead.
We see the probability of at least a further 25bps of cuts from the RBA, while the RBNZ maintains a tightening bias. This should help support NZD/AUD over the medium-term.
Domestically, it is a relatively quiet week ahead. This morning’s WMM employment confidence index will be of interest given the recent mixed messages on the New Zealand’s labour market.
Today’s ANZ commodity indices will likely be a reminder of the ongoing improvement in export prices. We expect a 3.5% gain in world-price terms.
Tomorrow morning’s dairy auction will make clear the biggest contributor – although given the extent to which prices have spiked over the last few auctions (underpinned by drought), the odds of seeing higher highs are diminishing.
For today, NZD/USD support will be found on any dips towards 0.8350, with resistance seen at 0.8400.
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Majors
The USD was weaker in thinned Easter trading. The JPY/USD started the week on a strong note.
Our risk appetite index (scale 0-100%) opens the week around 73%, down from its heady mid-March heights around 85%.
Uncertainty still lingers in Europe as Italian President Napolitano renews his efforts after a week of talks among parliamentary leaders failed to produce a government.
In Cyprus, border controls have been implemented in order to control capital flight. Despite this, the EUR has actually started to find its feet in the past few days. Finding support around 1.2770, it now trades around 1.2850 currently.
Early this morning, the USD fell from favour after a weaker-than-expected US ISM Manufacturing index was released (51.3 vs. 54.0 expected). The USD index has slipped to 82.70.
The JPY was the strongest performing currency over the past 24-hours. Extending its recent strengthening trend, the JPY benefitted from shunning of the USD after the ISM data.
The USD/JPY has slipped from 94.20 to 93.40 over the past 24-hours, down from mid-March highs around 96.70.
A key driver of the JPY this week will be Thursday’s Bank of Japan meeting. If the recent strengthening of the JPY is to be curtailed the BoJ will have to start delivering on hefty expectations for further easing.
It will need to increase efforts to move toward its new 2% inflation target (Japan CPI is currently still in negative territory y/y).
It will be busy later in the week offshore, with the Bank of England and ECB also announcing target rates on Thursday.
Market speculation has risen that the ECB will respond to the renewed downturn of the economy by cutting rates. However, we see this as unlikely.
Rather we expect President Draghi will use the press conference to highlight why Cyprus is a ‘special case’. He will aim order to quell fears Cyprus may be used as a template for bank resolutions elsewhere in Europe.
On Friday, the all-important US nonfarm payrolls and unemployment data will be delivered.
Today, the RBA announces interest rates. Given the market prices a small chance of a rate cut, non-delivery (our central view) should result in a fairly buoyant AUD on the day.
Tonight, European PMI data will be delivered and a slew of US Fed Speakers will hit the wires.
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