by Kymberly Martin
NZ Dollar
The NZD sits a little higher at 0.8280 this morning.
Yesterday’s ANZ commodity price index showed world prices for NZ’s main primary export products rose 1.3% in October. Prices were 22.9% higher than a year ago.
A recent pattern was seen i.e. a broadening in the products that are experiencing price gains. Overall the result supports our view that the terms of trade will push on to a 40 year high in Q4 this year.
The relative price shift in favour of what NZ exports compared to what NZ imports is having a significant positive effect on the purchasing power of the nation’s income. It is certainly consistent with current high business and consumer confidence. It is also one of the pillars of our view that the NZD will be well-supported into year end. The NZD/USD sits at 0.8280 this morning. We see it at 0.8400 at year-end.
The NZD/EUR was on the ascendancy last evening but was unable to hold onto its gains. It has returned to trade at 0.6130 this morning. The NZD/AUD cross is a little lower this morning.
Yesterday’s solid AU retail sales report, pushed the cross lower. Although it attempted a recovery overnight, trading up to 0.8740, it was also unable to hold onto the gain, returning to trade at 0.8710 currently.
There is little scheduled on the domestic data agenda today. However, early tomorrow morning look out for the latest global dairy auction results.
For today, key near-term support remains at 0.8240. Resistance will be encountered in the 0.8310-0.8330 window.
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Majors
The USD has weakened relative to most of its peers over the past 24-hours. The AUD has been the strongest performer.
The USD was on the back-foot overnight as US benchmark bond yields drifted lower. Disappointing Aug/Sept US factory orders released early this morning, extended the downtrend. The USD index sits at 80.60 this morning having ended last week above 80.70.
Equity markets were fairly quiet, providing modest positive returns (Euro Stoxx 50 +0.30%, S&P500 currently up 0.1%). Our risk appetite index (scale 0-100%) remains at a fairly healthy 70%.
Meanwhile, broad commodity prices attempted to rally but failed overnight. The CRB global commodity index (273.80) now sits at its lowest level since its mid-2012 dip.
But softer commodity prices were no impediment to the AUD overnight. The currency was set on an upward path yesterday afternoon with the release of stronger-than-expected real Q3 retail sales data (0.7%q/q vs. 0.2% expected).
Retail sales add to the better tone of data of late, providing more evidence the RBA will keep rates steady through the end of year, at least. The ADU/USD climbed steadily to sit around 0.9510 this morning.
Today, the RBA meets and is almost unanimously expected to keep rates on hold, at 2.50%. The decision itself is therefore unlikely to move the currency. But look out for any related commentary that could prompt the market to further reduce expectations for a future rate cut (currently 20% priced for the year ahead).
The major European currencies were beneficiaries of USD weakness overnight, assisted by local data releases. The Eurozone Sentix investor confidence survey for November (9.3 vs. 6.2 expected) showed confidence at its highest level since mid-2011. The EUR/USD traded up to sit above 1.3510 this morning.
The upward path of the GBP/USD was assisted by the release of the UK October construction PMI (59.4 vs. 58.7 expected). The GBP/USD sits a little higher at 1.5950 this morning, though down from intra-night highs.
Tonight, the UK services PMI will be released. The European Commission will also release its economic growth forecasts.
In the US, the ISM non-manufacturing index will be released. Fed member Lacker is scheduled to speak as the latest in a long line of Fed member to hit the wires this week.
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