By Kymberly Martin
NZD
The NZD has followed the AUD lower overnight. The NZD/USD currently sits around 0.7740.
The 3.7% decline in yesterday’s ANZ commodity price index for June was, strictly speaking, a good chunk worse than the 1.6% we anticipated.
However, it was still mainly reflective of correcting dairy prices, from their massive peak of March/April.
Indeed the overall ANZ commodity index still showed a 24.5% annual increase in world prices.
In addition, overnight the latest global dairy auction showed a 0.7% rise in average prices since the previous event. This was a good result against our expectation that some further near-term slippage may be in the offing.
Prices are 69% higher than a year ago. We continue to see solid NZ commodity prices helping to fortify the NZD against a broadly stronger USD in the year ahead.
However, the NZD came under pressure yesterday afternoon as the AUD fell following the RBA announcement. The downtrend in the NZD continued overnight in the backdrop of broad USD strength. The NZD/USD slipped to sit around 0.7740 this morning.
The NZD/AUD was initially boosted on the RBA’s announcement. However the cross failed to break above 0.8500, returning to trade at 0.8470. Resistance at the 0.8500 level will likely remain formidable in the near-term, but ultimately we see a break higher toward 0.8900 by year-end.
Today there are no domestic data releases scheduled.
Tonight, the NZD’s fate will likely be determined by the market’s response to the US ADP employment report. Solid NZD/USD support remains around 0.7700. Topside resistance for the week is seen around 0.7850.
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Majors
Broad USD strength was the key theme overnight, with the AUD, JPY and NZD the biggest under-performers.
Our risk appetite index (scale 0-100%) remained fairly steady around the 61% level. US bond yields were range-bound. Equity market performance was subdued with the Euro Stoxx50 closing down 0.7% and the S&P500 currently down 0.2%.
The USD was on the ascendancy early in the evening on a night thin on data releases. It got a further boost early this morning as the USD/JPY broke through the psychologically important 100.00 level.
The USD/JPY has rebounded rapidly from mid-June lows close to 94.00 and will now have late-May highs around 103.70 in sight.
Near-term direction will be impacted by this Friday’s US payroll data. Longer-term momentum for a higher USD/JPY is underpinned by US Fed indications it will gradually reduce monetary stimulus while the BoJ vows to sustain it.
The AUD initially dropped after yesterday’s RBA announcement maintaining a downtrend overnight. The RBA left rates unchanged.
But it again gave the green light to the AUD’s further decline, saying “It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy”.
At the previous meeting it did not offer a view as to the future direction of the AUD, merely noting it was still high despite the fall to date. This should help maintain the bearish market tone towards the AUD.
The AUD/USD currently sits around 0.9140, close to its lows since September 2010.
The EUR/USD and GBP/USD also drifted lower against the backdrop of broad USD strength, to sit at 1.3000 and 1.5150 respectively this morning.
Today, the Chinese non-manufacturing PMI will be released but has less potential to impact the AUD than the manufacturing equivalent.
AU May retail sales data will also be released. We, and the market, expect a 0.3% rise, continuing the run of better retail data in early 2013, after the very poor outcomes in Q4 2012. However, this is unlikely to be sufficient to shift the current negative mood toward the AUD.
Tonight, all eyes will be on the US ADP employment report, as an indication of risks around Friday’s all-important US payrolls report.
A soft reading today could see upward momentum in the USD tempered. US mortgage applications, trade balance and ISM non-manufacturing will also be released.
Event Calendar:
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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