by Kymberly Martin
In fairly quiet Friday evening markets, the NZD/USD followed the AUD/USD higher, to end the week at 0.8040.
The catalyst for local currency markets came from the release of Chinese data early Friday evening. Allaying market fears, the July data releases were broadly consistent with stabilising Chinese growth in 2H. The data set the AUD/USD on an upward path for the night. The NZD/USD was happy to ride on its coat-tails, to end the week at 0.8040.
While ripples from recent Fonterra events continue to radiate, the NZD/USD appears to have recovered very quickly. A further climb towards recent range-highs, around 0.8150, now looks possible.
But as we’ve noted before, near-term gains should be capped at around 0.8300 as long as Fed tapering expectations remain intact.
On the crosses, the NZD was slightly stronger relative to its European counterparts on Friday, but flat-lined against the JPY. The only notable under-performance came relative to the very strong AUD. The NZD/AUD declined steadily to end the week at 0.8740. We see further appreciation over the medium-term but continue to note that for now the NZD/AUD sits a little above its fundamental “fair-value”.
Markets should ease into the week with little scheduled on the global or domestic data fronts today. For NZ July food price data today, we expect a 0.4% increase. This feeds into our 0.7%q/q pick for Q3 CPI (1.1% y/y). This highlights that current inflation is not a threat to the RBNZ’s aims of price stability. However, we see inflation picking up toward the RBNZ’s central target (2%y/y) next year.
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Majors
The USD closed slightly higher in fairly tepid markets on Friday. The AUD was the key outperformer.
It was a relatively uneventful end to the week. Our risk appetite index (scale 0-100%) remains at a fairly solid 68%. Equity markets in Europe provided modest positive returns while the S&P500 closed down 0.36%. With the S&P500 earnings reporting season winding down this week 450/500 companies have already reported. A modest positive earnings surprise (2.8%) has helped to underpin equity markets.
In currency markets the AUD was the stand-out performer on Friday. During the early evening, the Chinese data dump failed to provide any nasty surprises. In fact industrial production was seen growing 9.7%y/y (8.9% expected). The data provide some signs the economy may be stabilising in 2H.
Our NAB colleagues maintain their expectations for 7.5% Chinese GDP growth in 2013, decelerating to 7.25% next year. However, market relief that current data was not worse, was sufficient to continue AUD’s recent rebound. The AUD/USD rose steadily from just above 0.9100 to end the week above 0.9200.
Elsewhere, the EUR/USD found resistance at the 1.3390 level, before drifting off to end the week at 1.3340. The only European data release of note was June French industrial productions which disappointed at -1.4%m/m (0.3% expected). However, trading in the EUR was likely impacted by strong technical resistance approaching the 1.3400 level, rather than by the historic data.
The GBP/USD traded choppily to end the week just below 1.5500. A UK highlight this week will be the release of the Bank of England’s August Minutes. Not only did the MPC members vote on the Bank Rate and the level of asset purchases, they also voted on the introduction of ‘forward guidance’. This appears the new tool of choice amongst central banks.
It will be a relatively quiet start to the week on the global data front. Today, Japan announces 2Q GDP (consensus 0.9%q/q). Tomorrow will bring the NAB business survey which will help refine RBA rate expectations. Currently the market still looks for a further 25bps cut in the year ahead. The German ZEW economic survey and US retail sales will also be released tomorrow as two of the more important global data points in the week ahead.
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