The NZD/USD has been up the hill and down again over the past 24-hours. It sits close to 0.7850 this morning.
Like most of its peers, the NZD/USD was launched higher after US Fed Chairman Bernanke’s comments yesterday morning (see Majors). Momentum was then maintained throughout the day.
The release of the June PMI slipped from the previous month’s heady level but was still strong at 54.7. Results confirm a solid and expansionary first half of the year for the NZ manufacturing sector.
The uptrend in the NZD/USD saw it stretch its legs well beyond its range of the past month. It reached toward 0.7970 last evening. However, it was then dragged back inside previous ranges. It slipped back below 0.7800 early this morning, striving toward 0.7850 at present.
The NZD was weaker on the crosses overnight, as the downward drift in the NZD/USD took hold. In the past two days the NZD has given back almost half of its late-June/early-July surge higher against the EUR and GBP. The NZD/EUR sits around 0.5980 this morning.
The NZD/AUD drifted lower overnight to sit around 0.8530 this morning. Overall the NZD/AUD has been consolidating since the start of the month.
Ultimately we see the cross moving higher to around 0.8900 by year-end. The move will be underpinned by widening interest rate and growth differentials.
Today, there are no domestic data releases and only AU home data scheduled across the Tasman.
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Majors
After all of yesterday morning’s excitement, moves overnight were more pedestrian. The USD index moved slightly higher on the night.
Following on from the volatility inspired by yesterday morning’s US Fed Minutes, the market then digested comments from Chairman Bernanke. These came in response to questioning after his prepared speech.
While reiterating many previous points, the market took his tone to be more dovish, pushing back on the recent rapid rise in US bond yields. He said “highly accommodative monetary policy” was needed for the foreseeable future.
The USD index consequently plunged. From above 84.00 it re-opened around 82.70 yesterday morning. However, subsequently, trading has been calmer and the index has clawed its way back to around 83.00 currently.
Overnight, our risk appetite index remained fairly stable around 65%. Equity markets posted positive returns and proxies for credit spreads narrowed. Trading in key European currencies was relatively range-bound.
The EUR/USD and GBP/USD now trade at 1.3100 and 1.5200 respectively.
The JPY was marginally stronger yesterday after the Bank of Japan meeting. As expected the Bank left rates unchanged. However it referred to the economy as ‘recovering’ for the first time since before the 2011 earthquake.
The Governor also said he believed the Bank had taken sufficient measures to achieve its 2% inflation target in two years.
While the Bank stuck to its previous pledge to expand its monetary base by ¥60-70t/year no additional measures were announced. The USD/JPY dipped as low as 98.40 before climbing back overnight to sit around 99.00 this morning.
Yesterday’s AU employment report elicited some volatility in the AUD. The unemployment rate rose to a new cyclical high of 5.7%. The details of the report were grim with all the growth in jobs part-timers, whereas employers cut back on full-time workers.
Over the past four months the rate of increase in the unemployment rate has started to rise. On balance, this report adds to the case for a RBA rate cut in August. The market now prices this possibility at 65%.
However, the AUD weathered the report well, once again indicative of the negative domestic outlook that is already factored into the currency. The AUD/USD touched as high as 0.9300 last evening before dropping back to sit at 0.9170 currently.
Today, AU home loans data will be delivered. Japanese and Eurozone industrial production will be released along with the US University of Michigan consumer confidence survey. The Fed’s Plosser and Bullard are scheduled to speak at Jackson Hole.
Event Calendar:
12 July: US Michigan consumer confidence; Fed’s Plosser & Bullard speak
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