by Kymberly Martin
NZ Dollar
The NZD sits higher, around 0.8380 this morning.
Yesterday was all about the NZ employment report. This showed the economic upswing is starting to show up in the labour market.
The Household Labour Force Survey showed a 1.2% quarter gain in official employment. That is strong growth and takes the annual increase in employment to 2.4%.
Labour demand was strong enough to not only draw on people previously outside the labour force (the participation rate rose to 68.6%) but also edge the unemployment rate down to 6.2%, from 6.4% previously.
This provided a shot in the arm to the NZD yesterday morning. The upward momentum was then assisted by a softish USD overnight. This saw the NZD/USD push above 0.8400 early this morning, before returning to sit around 0.8380 currently.
Trading on the NZD crosses was more range-bound overnight, as European currencies found their own independent supports. However, the NZD held onto its post-employment-report gains, against most key peers.
Trading in the NZD/AUD was capped at 0.8825 overnight. The NZD/AUD sits at 0.8810 currently, still a good step up from yesterday morning, given the boost from the employment report.
Today, the market will turn to the AU employment report as the key driver of the cross. A softer than expected report could see the NZD/AUD test resistance at 0.8850. Above this, lies the year-to-date high, around 0.8930.
For today, NZD/USD resistance will be encountered in the 0.8420-8440 window. Support is seen at 0.8350.
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Majors
Key European currencies outperformed on their own merits overnight, relative to a softer USD.
It was a relatively calm night in markets. Equities provided modest positive returns (Eurostoxx 50, 0.67%, S&P 500 currently up 0.25%). Our risk appetite index (scale 0-100%) remains at a healthy 69%. The CRB global commodity index stabilised after its plunge of recent weeks, to be up 0.60% from yesterday’s close.
The EUR was given an early boost by data that showed German factory orders rose 3.3%m/m in September (0.5% expected). The EUR/USD rose from around 1.3470 last evening to sit around 1.3530 this morning.
The GBP was on the ascendancy early in the evening but was also assisted by UK industrial production for September that surprised to the upside (0.9%m/m vs. 0.6% expected). The GBP/USD however, found resistance at 1.6110 overnight, limiting its overall gains to 1.6080 this morning.
The USD was on the back foot, given resilience in European currencies. A softer tone for the USD was also cemented by relatively dovish commentary from Fed members and commentators. Overnight, Fed members Lacker and Williams both expressed some caution about the pace of US economic expansion. The USD index sits a little lower this morning, at 80.50.
The AUD/USD benefitted from USD softness overnight. It sits at 0.9520 this morning. Today, all eyes will be on the AU employment report.
In contrast to the NZ equivalent, we see this on a deteriorating trend. The unemployment rate is expected to tick up from 5.6%, which would see it approaching the level currently prevailing in NZ. Still, this is unlikely to be sufficient to rattle the RBA that was sounding fairly relaxed at its last meeting.
Only a decidedly weak report would see the market begin to re-price RBA cuts, resulting in a weaker AUD. For now, the market prices a 20% chance of a 25bps cut by early next year, and a 25bps hike by the end of next year.
All focus tonight will be on the Bank of England and ECB meetings. Neither is expected to adjust rates and the BoE is expected to keep its asset purchases steady. However, with Eurozone annual inflation below 1% in October there is increasing pressure on the ECB to be seen to be supporting the region. President Draghi’s Press Conference will therefore be of great interest.
The US will also release Q3 GDP tonight. Consensus looks for a 2.0%q/q ann. outcome, down from 2.5% in Q2.
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