By Mike Jones
NZD
Egged on by rising commodity prices, the NZD/USD has climbed to a fresh 18-month high around 0.8530 this morning. As a result, the trade-weighted index has been propelled to yet another post-float high (78.45).
A resumption of the NZD/AUD uptrend has been a key driver of the recent TWI strength. Yesterday’s business survey data for NZ and Australia served to reinforce our long-held bullish NZD/AUD view.
A fall in the NAB survey of business conditions to the lowest level in four years had investors questioning the growing consensus that the RBA may have finished cutting rates.
At the same time, the NZ QSBO showed domestic economic momentum strengthening and broadening.
And with NZ capacity utilisation rising to 91.5% (from 90.5%), and labour indicators moving above average, there was plenty in the survey to unnerve the good folk down at the RBNZ.
Less negative NZ-AU interest rate differentials lifted NZD/AUD to 0.8140 yesterday afternoon. Our June quarter forecast is 0.8150, although the long position we entered at 0.7960 (short AUD/NZD from 1.2560) has an initial target of 0.8330 (1.2000).
It’s also worth noting that the decline in Australian business confidence yesterday has increased the short-term ‘fair-value’ range of our short-term NZD/AUD valuation model to 0.8000-0.8200.
Overnight, the NZD/USD was underpinned by rising commodity prices and more optimistic global risk sentiment.
Oil and gold prices are both up around 0.9% and our risk appetite index (scale 0-100%) rose from 78.1% to 79.2%.
Ostensibly, this was all driven by yesterday’s weaker-than-expected Chinese CPI. However, we suspect the USD is also suffering some independent weakness as investors price out some of the risk of a late 2013 ‘tapering’ in Fed easing.
For this morning’s electronic card transactions data we’re now looking for a 1.3% correction, following February’s solid gain.
More important for the NZD though will be Chinese trade data due at 2pm (NZT). A US$15.2b trade balance is expected, but it’s often the mix of exports vs. imports that is the more market moving statistic.
Overall, we maintain our positive NZD bias for the week. A daily close above previous resistance at 0.8500 would simply reinforce the uptrend. Support will be found on near-term dips towards 0.8475.
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Majors
The USD weakened against all of the major currencies overnight, in thin and generally lacklustre trading conditions.
An upbeat night in global equity markets and buoyant risk sentiment were the architects of the USD’s decline, as ‘safe-haven’ demand was wound back. US stock indices are up 0.5-0.7% after a positive lead from Europe.
The VIX index (a proxy for risk aversion) fell from above 13.5% to 12.8% and commodity prices are up almost across the board. Oil prices have risen 0.9% to US$94.2/barrel while the broad CRB commodity price index has settled around 0.6% higher.
In a night largely devoid of key US and European economic data, the improvement in sentiment is being tied to yesterday’s weaker-than-expected March Chinese CPI.
The sharp fall from 3.2%y/y to 2.1% (2.5% expected) has helped soothe fears about PBOC policy tightening later this year.
The resultant brightening in Chinese growth sentiment certainly helps explain last night’s commodity prices gains and the fact the AUD and NZD have led the gains against the greenback.
The EUR and GBP have also strapped on gains of around ¾ cent against the broadly weaker USD, the latter helped by encouraging February industrial & manufacturing data.
Ahead of Friday’s Eurogroup meeting, the key release for the EUR is probably tomorrow morning’s Fed minutes.
These will likely show FOMC members discussing the risks of continuing with QE3, but shouldn’t threaten the market’s expectation asset purchases will continue through to at least year-end.
Further short-term gains in EUR/USD are possible, but stiff resistance will be encountered at the 200-day moving average at 1.3145.
The higher USD/JPY trade paused for breath overnight, as profit-taking prevented the pair from taking out 100.00.
Market chatter suggests speculative investors remain keen to re-establish long positions on dips, so we suspect USD/JPY gains will resume before long.
Other News:
*UK manufacturing production bounced back in February with output growing by 0.8%, more than double the consensus forecast for 0.4%.
*UK industrial production 1.0%m/m (0.4% expected).
*Fitch downgrades China’s long-term local currency rating from AA- to A+, citing a number of “underlying structural weaknesses”
Event Calendar:
10 April: NZ ECT data; AU RBA’s Kent speaks; AU consumer confidence; CH trade balance; US FOMC minutes;
11 April: NZ PMI; AU employment; EU German CPI; US Fed’s Plosser speaks;
12 April: NZ food prices; EU Eurogroup meeting; US retail sales; US Fed’s Rosengren speaks.
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