sign up log in
Want to go ad-free? Find out how, here.

Receding fears about NZ dairy exports have seen the NZ$/US$ climb back above 0.7900 and the NZ$/A$ back at 0.8800

Currencies
Receding fears about NZ dairy exports have seen the NZ$/US$ climb back above 0.7900 and the NZ$/A$ back at 0.8800

by Mike Jones

The NZD has been the strongest performing currency over the past 24 hours. Receding fears about NZ dairy exports have seen the NZD/USD climb back above 0.7900 this morning.

At 0.8800, the NZD/AUD has also reclaimed all of its “dirty pipe” losses, even with yesterday’s less dovish RBA geeing up the AUD.

Offshore markets were looking towards this morning’s GDT dairy auction as a key test of dairy sentiment following the weekend’s Fonterra news.

With prices falling a relatively modest 2.4%, investors were able to breathe a sigh of relief. There was certainly no sign the general dairy market has been spooked. Prices overall remain extremely elevated and are still 71.5% higher than a year ago. The world dairy market remains tight. 

The RBA yesterday duly delivered the 25bps rate cut all and sundry had expected. But it appeared to drop the explicit easing bias that had characterised previous statements. The line “the outlook for inflation may provide some scope for further easing” was omitted, with a much more neutral line taking its place.

In response, the market trimmed the odds of additional rate cuts, sending the AUD/USD spiralling back towards 0.9000 (currently 0.8990), from around 0.8920 prior to the Statement.

We remain of the view another 25bps RBA rate cut is likely this year, as further economic softness bubbles to the surface.

Friday’s RBA Statement on Monetary Policy, with its formal forecasts for growth and inflation, will be the next key test of this view. Ahead of this, a push back above 0.9000 for the AUD/USD looks likely as speculative investors pare back previously aggressive short positions.

For the NZD, today’s suit of NZ labour market indicators will set near-term direction. As usual, the HLFS will be the most closely watched. We anticipate a 0.2% gain in the HLFS employment series which, combined with a 67.7% participation rate, would see the unemployment rate nudge down to 6.1%.

A result on our expectations would further buoy the NZD/USD given the consensus expectation of 6.3%. Short-term resistance for the NZD/USD will be found on any bounces to 0.7940, with initial support likely to kick in around 0.7865.

---------------------------------------------------------------------------------------------------------------------

To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.

Email:  

------------------------------------------------------------------------------------------------------------------

Majors

Currency markets continue to drift, reflecting both a lack of key event risk this week, and reduced flow as Europe enters the summer holiday period. Traded volumes in the S&P500 hit the lowest level this year on Monday.

We said at the start of the week that idiosyncratic currency performance will drive currency markets this week. This held true overnight.

The USD weakened against nearly all the majors (CAD was the obvious exception), but this was more about gains in the EUR/USD, AUD/USD, and GBP/USD than any fundamental shift in sentiment towards the greenback. The fact US bond yields barely budged overnight tends to support this.

More encouraging economic data underpinned early gains in the EUR and GBP. The EUR/USD climbed from 1.3265 to above 1.3300 as both German factory orders (3.8%m/m vs. 1.0% expected) and Q2 Italian GDP (-0.2%q/q vs -0.4% expected) beat expectations.

Upbeat UK industrial production and manufacturing figures briefly boosted the GBP, before macro sellers of GBP/USD and GBP/EUR drove the currency back to where it started the night around 1.5350.

The proximity of Wednesday’s BoE Quarterly Inflation Report (QIR) may have been another factor holding GBP back. We’ve been suggesting the GBP is vulnerable to a clarification of the BoE’s ‘forward guidance’ (perhaps linking future policy moves with nominal GDP or the labour market) which sees the market ramp up UK QE expectations.

Of course, the BoE will take the improvement in the economy into account, with upward revisions to GDP and CPI forecasts more than likely. This suggests the risks around GBP are perhaps more balanced.

Outside of the QIR, tonight’s data calendar looks fairly quiet, meaning currency markets are likely to remain in consolidation mode. The highlight will be a speech on monetary policy from the Fed’s Pianalto. Investors will be most interested in any updated views on QE tapering, following Friday’s disappointing employment figures.

Event Calendar:

7 August: NZ HLFS and LCI labour data; AU home loans; UK BoE inflation report; EU German industrial production; US Fed’s Pianalto speaks;

8 August: AU employment; CH trade balance; JN BoJ decision; US jobless claims;

9 August: NZ ECT data; AU RBA SoMP; CH CPI, PPI, retail sales, and industrial production.

No chart with that title exists.

All its research is available here.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

3 Comments

"Diry Pipe ??    speeling standards slipping again

Up
0

and other things lost

http://www.apassionforpipes.com/

 

Up
0

I'll be lying awake at night wondering was the headline supposed to be dairy pipe, dirty pipe, or dire pipe. all of them work.

Up
0