by Kymberly Martin
NZ Dollar
The NZD/USD softened a little overnight, to touch 0.8440, before returning to sit above 0.8460 this morning.
Yesterday’s domestic data showed the highest net immigration in 10 years, We note the RBNZ has increasingly mentioned immigration in its commentary this year. The context has been not just the problematic housing market but things like potential growth and the way this, in turn, influences thoughts on ‘neutral’ interest rates. So the today’s results will only intensify this debate.
The NZD however, like most of its peers seems rather stuck in limbo as it awaits the postponed release of US payrolls data tonight. Any softness in the data could see the NZD benefit from USD weakness, as QE ‘tapering’ expectations are pushed back further. However, stiff resistance for the NZD/USD is seen just above 0.8500, its highs of last week. Near-term support is eyed in the 0.8400-0.8420 window.
The upward momentum in the NZD relative to its key European peers seems to have dissipated for now. The NZD has softened a little on the crosses overnight, with the NZD/EUR and NZD/GBP sitting just below 0.6190 and 0.5240 respectively this morning.
The NZD/AUD declined to as low as 0.8740 overnight, before returning to trade above 0.8760.
We expect further NZD/AUD strength over the medium-term to take the cross above 0.9000 early next year. However, that may require the market to move back toward pricing a further RBA cut (our NAB colleagues’ central view is for a cut early next year). However, there is little data of note on either side of the Tasman today.
Also tomorrow’s AU Q3 CPI release is not anticipated to spur rate cut expectations, although the data is expected to show AU inflation remains contained. For now, NZD/AUD support is seen at 0.8740 and resistance at 0.8810.
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Majors
Currencies have traded fairly tight ranges over the past 24-hours. The USD index is a little stronger at 79.70 and the JPY has underperformed along with the NZD.
Data releases were relatively thin on the ground overnight. Our risk appetite index (scale 0-100%) remained fairly stable above 70%, as equities provided fairly flat returns. The Q3 US earnings reporting season continues to unfold. With 106/500 companies reported the combined earning surprise is now +4.3%.
The market appears to be a little caught in limbo as it awaits tonight’s all important US payrolls data for September (delayed due to the US government shutdown).
Overnight the USD index touched above 79.80 before returning to sit just below 79.70. For tonight’s payrolls data the market may be tempted to look through any signs of strength given it was compiled before the US government shutdown.
However, a mediocre payrolls report would likely see QE ‘tapering’ expectations pushed back even further. The current consensus for headline payroll employment is +180k. The US unemployment rate is expected to hold at 7.3%. The risks are likely tilted toward some further USD softness.
Key European currencies traded fairly tight ranges overnight. The GBP/USD sits fractionally lower this morning at 1.6160. After dipping toward 1.3650 overnight the EUR/USD remains at 1.3680, still close to its highs since late November.
The AUD/USD paddled a tight range between 0.9655 and 0.9675 overnight. There is little of note on the AU data agenda today although the release of China property prices may catch a glance this afternoon.
The centre-piece of the AU data calendar this week will be tomorrow’s Q3 CPI. Our NAB colleagues expect the data to show inflationary pressures remain contained at 1.6%y/y. However, along with the market they believe the November meeting will be too soon for a further RBA rate cut.
Aside from US labour market tonight also keep an eye out for the release of US construction spending and the Richmond Fed manufacturing index.
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