By Kymberly Martin
NZD
The NZD/USD was the strongest performer relative to its peers over the past 24-hours. It trades at 0.8570.
A better mood pervaded markets last night, as the negative impact of Friday’s US GDP report faded.
Typically, the NZD was a key beneficiary, along with its ‘risk sensitive’ peers.
Sitting at 0.8570 this morning the NZD/USD now has early-April highs around 0.8670 in sight.
However, a revisit of this level will be highly dependent on risk appetite for the rest of the week.
There is plenty of potential to upset the apple cart with a stacked US and EU data agenda ahead.
Closer to home, today’s ANZ business survey will be the highlight of the local event calendar.
We believe this will stay about as upbeat as it was in March, consistent with annual GDP growth of 3-4%.
The NZD was also stronger on the crosses overnight. The NZD/AUD, at 0.8280, is currently back trading toward last Friday’s highs, its highest level since mid-2009.
We continue to see further upside for the cross over the medium-term based on supportive growth and interest rate differentials. We maintain an end-year target of 0.8420.
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Majors
Risk appetite returned to markets overnight. The USD index declined and the NZD was one of the strongest performers.
After Friday night’s US-GDP-inspired pull-back in risk appetite, markets recovered some of their lustre overnight.
The Euro Stoxx 50 closed up 1.30% and the S&P500 up 0.90%. The better mood was prompted by the formation of a (precarious) Italian government over the weekend.
Sentiment was further boosted by the release of better-than-expected March US pending home sales data (1.5%m/m vs. 1.0% expected).
In this backdrop, the ‘safe haven’ USD was shunned in favour of ‘risk-sensitive’ currencies such as the NZD, AUD and CAD.
The AUD/USD has risen steadily from 1.0280 to nearly 1.0360. This reverses much of the past fortnight’s declines prompted by the release of RBA minutes and a low-side AU CPI reading.
Still, the market looks for a further 50bps of rate cuts from the RBA, expectations we suspect will be met by year-end.
The GBP/USD climbed as high as 1.5540 overnight before returning to trade at 1.5490 this morning. However, it remains around 4% above its mid-March lows.
There has been little in the way of positive UK data catalysts to spur this move, rather a sense that a highly gloomy UK outlook is already in the price.
The EUR/USD opened the week on the front foot and made further gains overnight, to sit just below 1.3100 this morning.
Tonight’s Eurozone data will likely show the unemployment rate ticking up even further (12.1% expected), but CPI remaining contained (1.6%y/y expected).
This should leave the way open for a rate cut from the ECB later in the week.
Event Calendar:
30 April: NZ building permits; NZ ANZ business confidence; AU private sector credit; JN jobless rate; NZ household credit; EU unemployment;
1 May: AU house prices; AU RBA’s Edey speaks; UK manufacturing PMI; US ADP employment; US ISM manufacturing index; US FOMC decision;
2 May: NZ ANZ commodity prices; AU building approvals; CH HSBC manufacturing PMI; EU PMIs; EU ECB decision; US jobless claims
3 May: CH non-manufacturing PMI; US non-farm payrolls; US factory orders; US Fed’s Lacker speaks.
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