by Kymberly Martin
NZ Dollar
The NZD/USD traded a fairly tight trading ahead of this morning’s US FOMC meeting. Breaking lower after the meeting it sits around 0.8200 currently.
There was little on the domestic data agenda yesterday to impact on the currency. Data released by the RBNZ showed it sold $7m in September. So the Bank sold the currency as the TWI bounced, as expected, but certainly not in any great volume.
The NZD/USD briefly gapped lower yesterday afternoon after capricious headlines suggesting Moody’s had considered removing the sovereign’s AAA credit rating. The headlines were slightly at odds with the agency’s presentation earlier in the day where it had sounded fairly relaxed about NZ’s position.
The NZD/USD very quickly recovered its composure, trading as high as 0.8280 overnight, before returning to 0.8240 ahead of the US FOMC meeting.
Post the meeting the NZD/USD was a victim of broad USD strength, falling to sit around 0.8200 currently. It would likely take a fairly hawkish RBNZ statement today to shore up the NZD/USD near-term, now that is looks to have broken through key support in the 0.8230-0.8240 window.
The NZD was marginally weaker on the crosses overnight. Most notably the NZD/EUR slipped to 0.5980, pushing below support at the 0.6000 level.
This morning all attention will be on the RBNZ’s OCR review.
While the recent fall in the NZD will have come as some relief, the TWI is still 2% above the Bank’s September (74.7) assumption. Obligatory comments about the “over-valued” NZD may therefore still prevail.
The ANZ business survey and the RBNZ’s weekly mortgage approvals are also scheduled for today. The latter have taken on greater importance since the RBNZ’s introduction of LVR restrictions at the start of the month.
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Majors
Ahead of the US FOMC meeting currencies remained in a holding pattern, trading extremely tight ranges. After the meeting the USD has strengthened against its peers.
Ahead of the meeting equity markets across Europe and the US were down fractionally. With 314/500 S&P500 companies now recorded, earnings surprise for Q3 continues to sit above 4.5%, though there has been less surprise on top-line growth. Our risk appetite index (scale 0-100%) has slipped slightly to sit around 67%.
The USD showed some modest volatility around data releases ahead of the FOMC meeting.
The ADP employment report for October came in below expectation (130k vs. 150k) and the previous month was revised down to 145k. The softness of the past couple of months’ data suggests it may be more than just the result of the US government shut-down.
US inflation was also shown to be contained. Core CPI ticked down to 1.7% against an expectation for it to remain steady at 1.8%.This suggests, for now, inflation is not an impediment to the Fed maintaining highly accommodative policy. The USD index dribbled down toward 79.50 ahead of the FOMC meeting.
The response to the FOMC statement suggests it was not as dovish as the market has anticipated. Overall the Fed sustained a similar central stance to last statement. The knee-jerk response was for the USD to strengthen relative to all its key peers. The USD index spiked from 79.50 to above 79.70.
The EUR gained a slight boost late last evening as data showed the German unemployment rate steady at 6.9%. Eurozone economic confidence was also shown creeping up in October, consistent with the regions modest recovery. The EUR/USD traded up from 1.3740 to sit close to 1.3770 ahead of the FOMC meeting. Post the meeting it succumbed to USD strength to sit around 1.3720 currently.
The AUD found its footing ahead of the FOMC meeting. Finding support at 0.9460 it crept to to trade around 0.9500. Early this morning, after the FOMC meeting it pushed lower to sit around 0.9450 at present. Today, key local data releases for the AUD will be AU building approvals and private sector credit.
During the Asian session today the market will continue to dissect the implications of the FOMC statement. Tonight the Eurozone unemployment rate will be released, while the US data focus may be the Chicago PMI.
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