by Kymberly Martin
NZ Dollar
The NZD/USD showed a bit of volatility at the end of the week to close around 0.8320.
With the stalemate in US fiscal negotiations continuing to prevail at the end of the week, the NZD/USD bobbed sideways around the 0.8300 level for much of Friday. Breaking higher early on Saturday morning it soon found resistance approaching the 0.8350 level, drifting off to close the week at 0.8320.
The NZD made steady gains relative to the GBP and EUR on Friday night. The NZD/GBP moved up from 0.5130 to end the week just below 0.5200. A solid band of resistance for this cross remains at 0.5220-0.5260.
The NZD/AUD ended the week close to 0.8820. For much of the past month it has been consolidating in a 0.8750-0.8920 range. This week’s AU data will be important for the RBA’s policy outlook and the AUD.
Tomorrow’s NAB business survey for September will be important, in gauging whether last month’s improvement in sentiment can be sustained.
Thursday’s employment report will also be key. The AU unemployment rate is expected to remain at 5.8% in September even as further deterioration is expected over the medium-term. Our NAB colleagues continue to anticipate that at least one further rate cut will be required from the RBA in coming months.
We continue to expect further NZD/AUD appreciation over the medium-term. We see the cross trading around 0.9100 by early next year.
Today is a public holiday in many Australian States. The NZ focus will be on the release of QV house price data. We expect another strong annual increase. Its commentary will be more important, as insight into early-stage impacts of LVR restriction.
Offshore the focus will continue to be US political developments. Crucial resistance for the NZD/USD remains at 0.8350, ahead of 0.8400. Support is eyed at 0.8300.
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Majors
The “risk sensitive” NZD, AUD and CAD outperformed on Friday night, while the USD also found some favour late in the week.
There was little in the way of significant developments in the US fiscal negotiations debacle on Friday night. US Speaker Boehner said the House will not agree to raise the US debt ceiling without packaging it with other conditions. By contrast, President Obama maintains he will not negotiate with Republicans over the issue.
Despite the stalemate, European and US equity markets managed to end the week on a positive note. The Euro Stoxx 50 closed up 0.90% and the S&P500 up 0.70%. Still, our risk appetite index (scale 0-100%) closed the week at 58%, down from September highs around 72%.
Despite uncertainty still reigning over the US, the USD gained some friends early on Saturday morning, as the EUR fell through previous support levels. The USD index closed the week at 80.10, a decent bounce from mid-week lows close to 79.60. The EUR/USD broke through support at the 1.3580 level to end the week just below 1.3560.
The GBP/USD extended its pullback of recent days. It is still our view that recent data momentum suggests the UK may outperform the Eurozone and the US. There has been no UK data to seriously challenge this view in recent days. However, price action in recent days suggests the market may be tiring of this story which has been factored in by the strong recovery in the GBP since early July. Further upside data surprises may be required if the GBP is to hold onto its gains. The GBP/USD ended the week at 1.6010 down from last week’s highs of 1.6260.
The AUD strengthened during the day on Friday, consolidating those gains overnight. The AUD/USD ended the week around 0.9450. Key resistance remains at the mid-September highs of 0.9520. Today is a public holiday for much of AU. The local focus for the currency will come later in the week with the NAB business confidence survey tomorrow and the AU employment report on Thursday.
Given the lockdown in the US the US data schedule is highly uncertain this week. Crucial US payrolls data is expected to be released at some point. Private sector data releases however will be unaffected and the US Fed minutes for September should also be published early Thursday morning (NZT).
For today, the global data schedule is fairly low key, featuring the Japanese monthly economic report and the Eurozone investor confidence survey. All eyes will remain on political developments in the US.
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