By Kymberly Martin
NZD
The NZD/USD was the strongest performer of its peers over the past 24-hours. It sits at 0.7860 currently.
The NZD took yesterday’s solid Q2 Quarterly Survey of Business Opinion and NZ credit card readings in its stride. There were plenty of wiggles across the wide range of indicators in the QSBO survey.
In a nutshell, the survey supports caution regarding Q2 GDP growth, while remaining firmly positive medium-term.
The NZD gained upward momentum overnight, along with the AUD. The most recent IMM speculative positioning data shows a NZD net short position is now in place.
This suggests the market has moved toward factoring in the implications of a stronger USD on the NZD.
However, negative sentiment toward the NZD is not nearly as extended as for the AUD where short positioning is at new historic extremes.
Both currencies outperformed overnight, with the NZD/USD sitting at 0.7860 this morning. This is the top of the range it has traded for the past month.
The NZD was stronger on the crosses, particularly relative to its European counterparts. In the backdrop of a weak GBP, the NZD/GBP jumped from around 0.5220 to sit close to 0.5290 currently.
This is its highest level since late May. The NZD/EUR also moved up from 0.6060 to trade around 0.6150 this morning.
There is nothing of note on the domestic agenda today. Tonight, a key driver of USD sentiment (and hence the NZD/USD) will be scheduled comments from Fed Chairman Bernanke.
On the day we see NZD/USD support at 0.7800 and resistance at 0.7900.
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Majors
The NZD, AUD and CAD outperformed in the backdrop of weak European currencies.
Overnight our risk appetite index (scale 0-100%) remained firmly at 66%, assisted by a solid start to the US Q2 earnings reporting season from aluminium company Alcoa.
Measures of corporate credit risk were generally narrower overnight, the Euro Stoxx 50 rose 0.50%, while the S&P500 is currently up 0.70%.
The USD traded a fairly tight range for much of the evening, before leaping higher on the back of EUR weakness early this morning.
The EUR/USD slid to its lowest level in three months, after comments from ECB member Asmussen. Building on previous dovish comments from the ECB’s Draghi, he signalled the Bank will maintain accommodative policy for an extended period.
He also said the ECB would not rule out a further LTRO. The contrast to the US Fed’s recent guidance towards defining a path of reduced accommodation saw the EUR/USD fall sharply. From overnight highs close to 1.2900 it now sits around 1.2780.
The GBP’s woes overnight were home-grown. In contrast to a recent run of better UK data releases, yesterday’s UK manufacturing production data was weak (-0.8%m/m vs. 0.4% expected).
This saw production falling 2.9%y/y. The GBP/USD gapped from 1.4980 to below 1.4920, drifting lower overnight to sit at 1.4860 this morning. It is now at its lowest level since mid-2010.
Yesterday’s AU NAB business confidence survey reported the weakest readings for business conditions and capacity utilisation for more than four years.
However, the AUD’s negative knee-jerk response proved very short-lived. This likely reflects the fact that a very negative outlook is already priced into the AUD.
Most recent weekly data show net speculative short positions in the AUD have moved to new extremes.
The AUD/USD recovered overnight to trade around 0.9190 this morning.
Today, the Westpac consumer confidence survey will be released. The market will be looking for glimmers of hope relative to the gloomy business survey. Chinese trade data will also be released today with potential to impact on sentiment toward the AUD.
Tonight, the US Fed will release its June Minutes. Perhaps more important will be a scheduled speech by Chairman Bernanke in Boston early tomorrow morning (NZ).
Any attempts to soften the recent trends of higher US yields and USD may have only limited impact. The QE ‘tapering’ cat is now well and truly out of the bag.
Event Calendar:
10 July: AU consumer confidence; CH trade balance; AU RBA Assistant Governor Debelle speaks; US FOMC minutes; US Fed’s Bernanke speaks;
11 July: NZ PMI; NZ food prices; AU employment; JN BoJ; US jobless claims;
12 July: US Michigan consumer confidence; Fed’s Plosser & Bullard speak
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