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Higher prices in Fonterra auction and ANZ Commodity Index components helping to strengthen NZ$ against majors

Higher prices in Fonterra auction and ANZ Commodity Index components helping to strengthen NZ$ against majors

by Kymberly Martin

NZ Dollar

The NZD/USD has strengthened over the past 24-hours to sit just below 0.8260 currently.

Yesterday’s ANZ commodity price index showed that NZ commodity prices remain elevated. Although world prices for NZ’s main primary exports eased 0.4% in November, prices are up 21.4%y/y. 

Prices for all major categories are well up on a year ago, with aluminium the exception. Certainly commodity prices are strong enough to suggest that NZ’s terms of trade pushed even higher in Q4 from the 40-year high recorded in Q3, shown yesterday. This remains a key support for the NZD.

Overnight, the latest global dairy auction also showed average prices rising 3.9% from the previous event. The NZD was also a beneficiary of broader USD weakness overnight. This saw the NZD/USD climb steadily, to sit just below 0.8260 at present. Our end year target for the NZD/USD remains at 0.8400.

The NZD continued its bounce relative to key European peers. The dip in the NZD/GBP below 0.5000 has proved short-lived. This cross sits at 0.5030 this morning.

Meanwhile, it was all one-way traffic in the NZD/AUD. The cross has pushed up to sit at 0.9040 this morning, its highest level since a short-lived spike higher in October 2008. Growth, interest rate and commodity price differentials that now favour NZ are clearly expressed in the cross.

Further upside will be heavier going, though momentum is still favourable for the NZD/AUD according to our momentum model. Key for the cross today will be the release of AU Q3 GDP.


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A weaker USD was the key theme overnight. The USD index sits almost 0.5% lower at 80.60 this morning.

In a data-light evening, Eurozone equities declined as risk appetite waned a little. Our risk appetite index (scale 0-100%) now sits at 62.6%. The Euro Stoxx 50 closed down 1.9% while the S&P500 is currently down 0.40%. There was no obvious catalyst, though the market may be in the process of pre-positioning itself for Friday’s all-important US payrolls data.

The only major currency not to strengthen relative to the USD over the past 24-hours was the CAD. Elsewhere key outperformers were the SEK, NZD and CHF, suggesting no clear ‘risk on’ or ‘risk off’ theme was at play.

The JPY also strengthened against the USD. The USD/JPY failed to push through May highs of 103.70, sitting at 102.20 this morning.

The GBP was supported by the release of the November UK construction PMI overnight. It jumped to 62.6 (59.0 expected) suggesting strong momentum in this sector. The GBP/USD pushed on up to 1.6420, its highest level since August 2011.

In Australia, the RBA kept policy on hold as expected and released a statement that was almost identical with the early November view. We think the 17 December Minutes will show an RBA that recognises the tentative recovery in areas such as household and business sentiment and house and equity prices.

However, it is still unsure whether these will be sustained and thus maintains its easing bias. The RBA continues to see the AUD as “uncomfortably high” despite its fall since the start of the year. It believes a lower level is likely to be needed to assist in the rebalancing of the economy.

Despite dipping as low as 0.9060 yesterday afternoon, the AUD/USD benefitted from USD weakness overnight, returning to trade at 0.9130 currently. Next up is AU Q3 GDP today. Consensus expects 0.7% q/q (2.6%y/y).

This evening all eyes will be on the US ADP employment report as a precursor to Friday’s all-important payrolls data. In additions, US new homes sales, the non-manufacturing ISM and the Fed’s Beige book will be released tonight. This will provide the Fed’s latest economic insights ahead of its 18 December meeting.

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