By Mike Jones
NZD
The NZD has started the week on the front foot. Indeed, the NZD and AUD have outperformed over the past 24 hours, as a string of encouraging economic data has reinvigorated equity and commodity markets.
The NZD/USD currently trades around 0.7815, close to a cent above where it opened yesterday.
It’s worth noting, our risk appetite index (which has a scale of 0-100%) has bounced from 45.1% a week ago, to 60.9% overnight.
The recovery in risk sentiment has come as Chinese interbank liquidity fears have eased, economic data have restored faith in the global recovery, and Fed speakers have confirmed they will not snatch the QE punchbowl away prematurely.
The recovery in all things ‘risk’ continued overnight. The latest round of manufacturing PMIs mostly came in on the stronger side of expectations (with China perhaps the only exception), bolstering investor sentiment.
Global equity markets notched up solid gains, and commodity prices recouped some of their recent losses. The CRB index is currently up around 0.8%, driven by a 1.5% rebound in the gold price and a 1.4% bounce in oil prices.
Against this more upbeat backdrop, the NZD/USD managed to grind up through 0.7800 overnight, with the AUD/USD squeaking through 0.9200.
We’ve witnessed the tentative return of exporter appetite for the antipodeans over the past 24 hours. In contrast, the speculative community remain keen to play the AUD and NZD from the short side.
We’re expecting a 1.6% decline in the world price component of today’s ANZ commodity price index. We also hold a small negative bias for tonight’s GDT dairy price auction.
However, this afternoon’s RBA meeting promises to be today’s main event for the NZD. An unchanged 2.75% cash rate looks like a done deal. All the interest will be on the strength of the RBA’s easing bias, in the context of the AUD’s sharp decline.
Suggestions the RBA continues to view the AUD as overvalued would only reinforce speculative interest to sell AUD/USD rallies towards 0.9300.
Near-term support for the NZD/USD is looking solid around 0.7700. And while a further run to the topside does look likely for today, resistance is expected to kick in around 0.7850.
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Majors
The USD dribbled lower against most of the major currencies overnight, in relatively listless trade.
All eyes overnight were on the US ISM manufacturing index, as this week’s first test of the Fed’s intention to taper QE later this year.
The rise in the headline index was encouraging (50.9 from 49.0 in May). But investors were more concerned with the fall in the employment subcomponent, to the lowest level since September 2009.
The negative implications for Friday’s key non-farm payrolls data saw US bond yields and the USD pare some of their recent gains.
A warning from Goldman Sachs that the market’s +165k expectation for payrolls may be optimistic added to the pressure on the greenback. Equity markets, meanwhile, revelled in the prospect of ‘QE for longer’.
US stocks are up 0.7-1.1%, following gains of 0.3-1.5% across European bourses.
The EUR enjoyed some rare gains against the weakening USD, after the June European PMIs suggesting manufacturing activity is improving in the region (see below).
From 1.3010, EUR/USD bounced back up to resistance around the 200 day moving average at 1.3065. Still, the NZD and AUD were the biggest outperformers, thanks to the gains in commodity prices and equity markets.
This week’s US data feast continues tonight with factory orders and the ISM index for New York. Solid numbers are likely from both.
However, the Fed’s labour market focus means the market reaction could be subdued as investors await Friday’s payrolls data.
We continue to hold a mild downside bias for the USD this week. Near-term resistance at 84.50 on the USD index will be tough to crack. Support is eyed around 82.70.
Other news:
*June Chinese PMIs broadly match expectations. “Official” reading rises 50.1, while the HSBC version undershoots expectations slightly at 48.2 (both readings at 9-month lows).
*European PMIs show manufacturing sector contracting at a slower pace than expected (48.8 vs. 48.7 expected). Spain’s manufacturing sector expanded for the first time in two years.
* Euro-zone inflation rises from 1.4% to 1.6% (as expected) while May euro-zone unemployment rate prints lower than expected (12.1% vs. 12.3% expected).
*UK PMI 52.5 vs. 51.4 expected.
Event Calendar:
2 July: NZ ANZ commodity prices; AU RBA meeting; US ISM New York; US factory orders;
3 July: CH non-manufacturing PMI; AU home sales, trade balance, and retail sales; CH HSBC services PMI; AU RBA Governor Stevens speaks; EU services PMIs; EU retail sales; US ADP employment;
4 July: JN BoJ’s Kuroda speaks; AU building approvals; UK BoE meeting; EU ECB meeting;
5 July: NZ Crown accounts; EU German factory orders; US non-farm payrolls.
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