by Kymberly Martin
NZ Dollar
The NZD/USD has continued to creep higher overnight, benefitting from broad USD weakness. It sits around 0.8090 this morning.
Overnight, demand for the USD waned as risk appetite stabilised and US bond yields declined after a successful Treasury bond auction (see Majors). Along with most of its peers the NZD was a beneficiary, moving off lows around 0.8040 it sit at 0.8090 currently. The currency is now approaching the crucial resistance band between 0.8100 and 0.8160 that has marked its highs since late May.
Valuation remains no impediment to further appreciation of the NZD/USD as our short-term ‘fair-value’ model shows a range of 0.8000-0.8600. However, today attention will fall squarely back on domestic fundamentals with the RBNZ’s policy announcement.
We expect the RBNZ will not wish to do anything to further inflame quite assertive rate hike expectations. The risk is they successfully dampen down expectations (temporarily), reducing the NZD’s interest rate differential. This would likely prevent a near-term push higher in the NZD.
The NZD was largely in consolidation mode on many of the crosses overnight, with the NZD/GBP the key exception. Strength in the GBP, prompted by UK employment data, saw the NZD/GBP slip.
Trading below 0.5100 at one point, it now sits at 0.5110. A ‘dovish’ RBNZ announcement today, combined with continued positive momentum in UK data in coming weeks, could see the NZD/GBP retest the glass floor of 0.5000.
Aside from the RBNZ meeting there are no domestic data releases today. Across the Tasman all eyes will be on the AU employment report. In contrast to NZ, this is expected to show AU’s labour market is still on a deteriorating trend. This could stall recent upward momentum in the AUD.
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Majors
Overnight, the USD was broadly weaker. The GBP was a key outperformer.
Overnight, the oil price sustained its recent fall and our risk appetite index (scale 0-100) rose to 65% (from last week’s lows of 55%). US President Obama formally announced he would attempt to pursue a diplomatic rather than military resolution to the Syrian crisis.
In addition, a successful auction of US 10-year bonds saw their yields fall. Equities posted modest positive gains across most markets.
In this backdrop, the USD continued to slide from favour. The USD index declined from 81.90 last evening to sit at 81.50 currently. The EUR/USD was a beneficiary, rising from around 1.3260 to trade at 1.3310 this morning.
By contrast the GBP outperformed on its own merits. UK employment data broadly beat expectations. The unemployment rate ticked down to 7.7% in July (7.8% expected). The data consolidated a sense of improving momentum in the UK economy, from a low base. The GBP/USD spiked higher on the data release, later building a more sustainable path higher to 1.5820 this morning. This is the highest the GBP/USD has traded since February this year.
The AUD/USD was largely in consolidation mode overnight. It picked up a little upward momentum early this morning to now sit just below 0.9340, its highest level since late June. This now brings the 0.9500 level into view, though the biggest challenge to upward momentum may come from today’s AU employment report. AU’s labour market is seen to be still on a broadly deteriorating path. Today’s data is expected to show the unemployment rate tick up to 5.8% from 5.7% previously.
Tonight, Eurozone industrial production data is released, while the attention in the UK will be the Bank of England’s testimony to the Treasury Select Committee on the August inflation report. This may be an opportunity for Governor Carney to remind the market of its ‘forward guidance’. i.e that rates will be low for a long time yet. Dovish comments may also be forthcoming from members Fisher and Miles who have previously voted for further QE. This may temporarily dampen enthusiasm for the GBP, though the market is likely now more focused on watching for evidence in hard economic data than on rhetoric.
Event Calendar:
11 Sep: AU consumer confidence; EU German CPI; UK ILO unemployment
12 Sep: NZ RBNZ announcement; AU employment; US jobless claims;
13 Sep: NZ PMI; NZ food prices; NZ consumer confidence; JN industrial production; US PPI; US retail sales; US Michigan consumer confidence.
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