by Kymberly Martin
The NZD sits lower this morning against a broadly stronger USD. The NZD/USD trades around 0.7930 currently.
The NZD has been buffeted by global data releases over the past 24-hours.
Yesterday morning, the NZD/USD initially responded positively to domestic data showing a higher than expected June trade balance ($414m vs. $105m expected). However, the details were a little more disappointing than the headline suggested. Exports were marginally above market expectations, but imports were substantially weaker than expected.
Later in the day, the NZD gapped lower, along with the AUD, after a weaker than expected China PMI release. The downtrend then became entrenched overnight as the USD strengthened on the back of positive US data surprises. From month-highs around 0.8010 yesterday morning, the NZD/USD now trades around 0.7930.
Despite some notable volatility around the Chinese data release, the NZD/AUD then set on a steady upward path overnight. This sees the NZD/AUD back up at its highs since Nov 2008, at 0.8660.
Still, cyclical NZD/AUD drivers remain strongly positive, and long-run valuations are not yet problematic. As a result, we remain comfortable with our forecast for further appreciation in the cross, to around 0.8900 by year-end.
With some bumpy trading overnight, the NZD declined relative to key European peers. The NZD/EUR and NZD/GBP sit around 0.6010 and 0.5180 respectively this morning.
Tonight, the release of the German IFO survey and UK Q2 GDP may be crucial for these crosses.
But for this morning, all eyes will be on the RBNZ’s OCR review. However, we do not expect the statement to substantially shift market pricing (see Fixed Interest), which currently has around 50bps of OCR hikes in the year ahead.
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Majors
It was a fairly turbulent night for many currencies, with the USD eventually gaining the upper hand. Over the past 24-hours the USD has gained against all its major peers, with the AUD the weakest performer.
Data delivery has been an important driver of currencies over the past 24-hours, driving volatility. The EUR initially surged higher last evening after July European PMI data surprised to the upside. The composite reading (including both manufacturing and services) moved into expansion (50.4) for the first time since January last year. The EUR/USD touched above 1.3250.
However, early this morning, it was time for US data to surprise on the upside. The July Markit US PMI moved up to 53.2 (52.6 expected). US new home sales data for June were also shown rising 8.3%m/m (1.7% expected). Sales rose to the highest level in five years. This saw the USD gain the upper hand. The EUR/USD subsided to around 1.3190. The USD index now sits around 82.30, just off its highs for the night.
Overall, market risk appetite remains on a fairly steady footing at present. Our global risk appetite index (scale 0-100%) remains around 72%.
Equity markets continue to be buffeted by the to-ing and fro-ing of expectations for US QE ‘tapering’. However, earnings growth remains an underlying support for US equities. With around 170 of the S&P500 companies now reported, earning surprise is sitting at a solid 3.3%. The financials sector is providing the greatest positive surprise.
In contrast to positive momentum shown in Europe, the China HSBC flash PMI slipped further into contraction, to 47.7 in July (48.2 expected). This resulted in some volatility in the AUD/USD, before a downward trend became entrenched overnight.
The AUD/USD declined from above 0.9300 to sit around 0.9150 this morning. Over the past month the AUD/USD has essentially been consolidating in a broad 0.9000 to 0.9300 range, after its previous precipitous fall.
The GBP was generally an innocent casualty of the trans-Atlantic tug-of-war overnight. It ended the night lower relative to the strong USD, at around 1.5310. However, the GBP may have greater control of its own destiny tonight with the scheduled delivery of Q2 UK GDP. Consensus expects at 0.6%q/q outcome, up from 0.3% in the previous quarter. This could help support the GBP/USD that remains well off its early July lows close to 1.4800.
Tonight, the German IFO survey has the potential to continue the positive momentum in European markets (the Euro Stoxx 50 closed up 1.1% yesterday). US durable goods orders will also be released
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