by Mike Jones
It’s been a v-shaped sort of night for the NZD/USD. After flirting with recent lows below 0.7740, a slide in the USD and JPY soon dragged the currency back above 0.7800.
Yesterday’s Chinese data helped the NZD and AUD start the week on the front foot. The slowing in GDP growth to 7.5% was bang in line with expectations, but probably a little stronger than the ‘whisper’ numbers circulating following recent softish rhetoric from the Chinese administration.
Overnight, the NZD/USD simply traced volatility in the USD. Having spent the first part of the night in decline, the NZD/USD soon bounced back as downbeat US retail sales figures knocked back USD sentiment.
A smart bounce in the NZD/JPY (from 77.40 to 78.00) assisted the move higher.
Media reports suggesting the RBNZ is on the verge of introducing ‘speed limits’ on high LVR mortgage lending could impact the NZD today. Of course, the limits have been in the wings for a while. However, reports suggest they may be introduced earlier, and be more aggressive, than first thought.
The risk is that the RBNZ’s preference for using macro prudential tools, rather than interest rates, to slow the housing market could see OIS markets take out some of the (45bps worth) of RBNZ tightening priced into the interest rate curve.
It’s also a big day event risk-wise. At 10:45, June quarter CPI figures will be released. Another weak inflation number is expected (BNZ & market both 0.3%q/q, 0.8%y/y).
Confirmation of another CPI print below the RBNZ’s 1-3% target band (the fourth consecutive in fact) may weigh on the NZD/USD on the day.
Later this afternoon, the RBA Board minutes from the July meeting will be released (1:30pm). These may provide some insight into how much weight the RBA is placing on the Q2 Australian CPI (July 24) as a determinant of a possible rate cut in August.
Early tomorrow morning we’ll get the results from the latest GDT dairy auction. Prices could conceivably go either way, but another lift could be the straw that forces us to rethink our negative bias.
All up, we hold a negative NZD/USD bias for the day. Resistance at 0.7885 should continue to cap near-term gains, while dips are expected to be limited to 0.7760.
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Majors
Currency markets mostly consolidated overnight, in a relatively subdued start to the trading week. A mildly positive tone prevailed, with equity markets notching up modest gains, risk aversion gauges losing ground, and ‘growth-sensitive’ currencies outperforming.
The better mood was thanks in part to yesterday’s solid Chinese GDP figures. But this didn’t stop the USD from launching another probe to the topside. In the wake of the stronger USD, the EUR/USD was squeezed down to 1.3000 and USD/JPY was propelled from 99.20 to almost 100.40.
However, it wasn’t long before the greenback began to run out of steam. A disappointing read on June US retail sales (0.4%m/m vs. 0.8% expected) had analysts scrambling to revise down already weak forecasts for Q2 US GDP growth, sapping USD sentiment. An upbeat Empire Manufacturing index (9.46 vs. 5.00 expected) provided only a small offset.
The reversal in the USD (assisted by US bond yields edging lower) spurred a decent bounce across most of the majors.
EUR/USD climbed more than a cent off its overnight lows, rejecting the 1.3000 downside for the third consecutive day. GBP/USD also rose around ½ cent to 1.5100, with both AUD/USD and NZD/USD pushing back up into the middle of their recent ranges.
Looking ahead, tonight brings plenty of economic data for the market to get its teeth into. Of particular importance will be US CPI.
Key in whether the Fed does taper QE asset purchases later this year is whether US inflation begins to rise in line with the FOMC’s forecasts.So an undershoot tonight (0.3%m/m expected for headline, or 0.2% ex-food & energy) could further undermine the USD.
For the USD index, strong resistance is being encountered on rallies towards 83.50. Support is seen at the 82.65 200-day moving average.
Event Calendar:
16 July: NZ CPI; AU RBA minutes; UK CPI; EU German ZEW; US CPI; US industrial production; US NAHB housing index;
17 July: JN BoJ minutes; UK BoE minutes; UK ILO unemployment; US housing starts & building permits; CA Bank of Canada announcement;
18 July: G20 begins; NZ ANZ consumer confidence; UK retail sales; US Fed’s Bernanke begins Testimony to Congress;
19 July: NZ net migration; NZ credit card billings; UK public sector borrowing.
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