By Kymberly Martin
NZD
The NZD/USD has consolidated over the past 24-hours to sit at a similar level, of 0.7790, this morning.
Yesterday’s ANZ business survey confirmed positive momentum in the NZ economy. Business confidence moved up from 41.8 to 50.1, while the activity outlook jumped from 34.3 to 45.0.
The profit expectations, employment and investment components also all lifted substantially. Not only that, but these indicators are now essentially as strong as they get.
Employment lifting to 17.0 from 9.8 was particularly strong. On our seasonally adjusted estimate, this is as strong as employment intentions have been since 1995. This is telling.
Confidence can come and go, but firms are now explicitly intending to act through employing more staff and lifting investment.
This helped set the NZD/USD on an upward path yesterday afternoon. However resistance was encountered above 0.7840 and the currency then slipped back to 0.7790 early this morning.
The NZD also broadly consolidated on the crosses. The NZD/AUD has traded between 0.8380 and 0.8420 over the past 24-hours. This is at the upper-end of our current short-term model-derived NZD/AUD ‘fair-value’ range of 0.8200-0.8400.
Consolidation seems justified in the near-term. However, in the year ahead we expect the components of our fair value model (relative business confidence, interest rate differentials and relative commodity prices) to favour the NZD. We anticipate the NZD/AUD approaching 0.8900 by year-end.
There is little on the domestic agenda to impact on the currency today. Building permits will be released. Tonight, a sprinkling of US data releases will be augmented by an array of ‘Fed speak’.
For today, resistance for the NZD/USD will likely again be encountered approaching 0.7860. Support is eyed at 0.7720.
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Majors
The past 24-hours have been a period of consolidation for currencies. The weakest performer was the JPY and strongest the NOK.
Our risk appetite index (scale 0-100%) that bottomed at 45% on Monday is now back at 59%.
Overnight, equities posted solid returns across regions. The Euro Stoxx50 closed up 0.70% and the S&P500 is currently up a similar amount.
Measures of corporate credit risk have narrowed. In the past two days peripheral European spreads to German bonds have also narrowed. e.g. Italian-German 10-year spreads have narrowed around 20bps as general market fear has calmed.
The USD index traded sideways around the 82.90 level until the release of US home sales data early this morning.
May pending home sales came in at 6.7%m/m vs. 1.0% expected. This launched the USD index toward 83.20. However, later, dovish comments from Fed speaker Dudley (see Fixed Income) saw the USD knocked back below 83.00.
Overnight, there were slight glimmers of hope in Eurozone data releases. The region’s economic confidence indicator moved up from 89.4 to 91.3 (90.4 expected).
The German unemployment rate was shown at 6.8% in June, steady with the revised May reading.
The EUR/USD took the data in its stride. It traded around the 1.3030 level most of the evening, interrupted by a short period of USD driven volatility early this morning.
The resent resumption of JPY weakness continued overnight. The USD/JPY moved up from 97.80 to around 98.40. The currency will likely face stiff resistance approaching the crucial 100 level. Ultimately, over the longer-term we see further JPY weakness taking the USD/JPY beyond its May highs (around 104).
The AUD/USD consolidated overnight, once again finding resistance approaching 0.9340. It sits at 0.9280 currently.
Tonight, June UK house price data will be released, along with German retail sales and CPI.
Tonight the US data week will end with the Chicago PMI and the University of Michigan consumer confidence index.
The US Fed’s Powell, Dudley and Lacker will also be speaking, and likely doing their bit to calm market nerves over the pending reduction of Fed accommodation. However, Powell is considered to have ‘hawkish’ leanings so his remarks will be interesting to compare to those from the more ‘dovish’ Dudley.
Event Calendar:
28 June: NZ building permits; JN jobless rate; JN CPI; US University of Michigan consumer confidence; US Fed’s Williams, Dudley and Lacker speak.
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