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Despite poor NZ trade data, core imports of investment goods show evidence of the construction upswing that’s underway

Currencies
Despite poor NZ trade data, core imports of investment goods show evidence of the construction upswing that’s underway

by Kymberly Martin

The NZD was the strongest performer amongst its key peers over the past 24-hours, sitting at 0.7850 currently.

The NZD showed limited response to NZ trade balance data yesterday morning.

July’s merchandise trade deficit ($774m vs. $16m expected by market) was mainly owing to a lump of aircraft imports and higher than usual oil arrival in the month.

That aside, there remained a solid tone running through core imports, especially around investment goods. This is encouraging, and may be further evidence of the construction upswing that’s underway.

The NZD/USD showed a quiet ascent ahead of the key data release last night, US durable goods.

A disappointing result, saw the NZD benefit from knee-jerk USD selling. The NZD/USD was boosted to 0.7870, holding onto much of the gain to sit around 0.7850 this morning.

The NZD was also stronger on the crosses, extending its bounce relative to its key European peers. The NZD/GBP sits around 0.5040 this morning having found crucial support at 0.4980 on Friday evening. Around the psychologically important 0.5000 level has marked the lows on this cross since June last year.

It was all uphill for the NZD/AUD over the past 24-hours. From around 0.8630, the cross has climbed steadily to sit just below 0.8700. A band of support for the cross appears to be forming above the 0.8600 level. There is little on the local calendar to drive the cross today.

Over the medium-term we continue to see relative domestic developments (growth, interest rates, commodity prices) supporting the NZD. We see the NZD/AUD moving above 0.8900 by year-end.

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Majors

Currencies traded relatively tight ranges, aside from some USD-inspired volatility early this morning.

It was a relatively sluggish start to the week, aided by a Bank holiday in the UK. Aside from a 2.0% fall in the Italian MIB index, equity market performances were clustered around flat. Commodity prices made further gains led by agricultural commodities. The CRB global index is up a further 0.90%. The WTI oil price continues to hover above $105/barrel, underpinned by ongoing Middle-East tensions.

The USD index traded virtually without a heart-beat for most of the evening, before rising to 81.50 ahead of the release of US July durable goods orders early this morning. The data (-7.3%m/m vs. -4.0% expected) represented genuine softness and dampens hopes for a pick-up in business investment in Q3. The USD index then skidded to below 81.30 before clawing its say back to 81.45 this morning. The response to the data (not normally a significant market mover) shows the market’s heightened sensitivity to individual data points in the lead-up to the September 18 US FOMC meeting.

The EUR/USD responded in mirror image, popping from 1.3360 to above 1.3390 on the data delivery, before drifting back down to below 1.3370 this morning. The pattern was also mimicked by the GBP that currently trades at 1.5570.

The AUD/USD, which had been drifting lower over the course of the evening, shot from 0.9010 to 0.9070 on the back of the knee-jerk move in the USD. However, the move was not sustained. The AUD/USD sits around 0.9020 currently, still dabbling at the lower-end of its range of the past couple of months. There are no AU data releases today, though it may be worth keeping an eye on Chinese industrial profits released this afternoon. A negative outcome has potential to dampen sentiment toward the AUD.

Elsewhere, tonight, all eyes will be on the German IFO survey of business. Consensus expects improvement in current conditions and expectations in August, over the previous month. US consumer confidence, house price data and Richmond the Fed manufacturing index are delivered tonight. Given current market sensitivity, any of these data has the potential to elicit a USD response, especially if feeding nascent concerns about the economy’s resilience to higher yields.

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