by Kymberly Martin
NZ Dollar
The NZD/USD sits somewhat lower, at 0.8220 this morning as the market awaits the US FOMC meeting (8am NZT).
Yesterday’s domestic data was more of the same. i.e. telling a story of positive economic momentum. In fact, taken at face value, yesterday’s ANZ business opinion survey would be consistent with 7% NZ GDP growth in coming months. This is far above our own forecasts which look for 3.4% growth in calendar year 2014. However it shows where risk lie; on the upside.
However, as if to prove domestic fundamentals are not the only thing to influence the currency, the NZD/USD drifted lower overnight, awaiting this morning’s FOMC meeting.
Given domestic strength we have long argued the real turn in the NZD will be unlikely the result of a domestic catalyst but more the result of sustained strength in the USD.
We may be still some way from that eventuality. Hence our view the NZD/USD will remain fairly well supported near-term, spending much of H1 2014 above 0.8000. Currently the NZD/USD sits at 0.8220.
The NZD was also weaker on the crosses. Most notably the NZD experienced quite a harsh fall against a strong GBP. From 0.5090 yesterday afternoon, the NZD/GBP now sits at 0.5020. Key support remains just below the 0.5000 level.
Today, the domestic focus will be on the release of Q3 GDP. We anticipate a 1.0% (3.2%y/y) outcome. That is not far from the RBNZ and consensus expectations of 1.1%q/q.
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Majors
Heading into this morning’s greatly anticipated US FOMC meeting the USD and EUR had virtually no pulse. The GBP outperformed and the NZD and JPY underperformed.
Overnight, the market was generally in ‘wait and see’ mode ahead of the Fed’s meeting (8am NZT). European equity markets were fairly buoyant providing 0.9%-1.1% returns. The S&P500, is more reticent, currently virtually flat on the night. The USD index traded virtually a flat-line at 80.10.
The EUR/USD also displayed fairly lifeless trading. The German IFO survey was consistent with other evidence pointing to steady, if not spectacular, growth in the economy. The current assessment of the economy (111.6 vs. 112.5) was slightly below consensus, but the IFO expectations survey was slightly above (107.4 vs. 106.5). The EUR/USD sits at 1.3760 this morning.
The GBP was boosted after the release of the Bank of England minutes and UK employment data. The minutes showed the MPC voted unanimously to keep the Bank Rate at 0.5% and to maintain asset purchases at £375b.
The data showed the ILO unemployment rate (3mths to Oct) fall to 7.4% from 7.6% previously. The actual number for October itself was 7.1%, close to the 7.0% level the MPC had marked out for reassessing the case for its Bank Rate. Meanwhile, the December CBI retail volume sales report (34 vs.10) was also stronger than expected. The GBP/USD surged from around 1.6280 to sit at 1.6380 this morning.
The AUD/USD has trickled lower overnight. In RBA Governor Steven’s testimony yesterday he said the currency has performed as expected by declining (the AUD/USD is now around 13% lower than at the February hearing).
He reiterated the Bank has not been intervening in the currency but it was an option. He also confirmed the Bank maintains an easing bias, saying although rates are very low it would lower rates if needed. From above 0.8900 the AUD/USD has fallen to 0.8880. It is just a fraction above its early August lows of 0.8850.
This morning it is all eyes on the US FOMC meeting. The market will dissect the implications in the day ahead. Tonight, the US Philadelphia Fed survey is released along with US existing home sales data. UK retail sales data for November will also be released.
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