by Kymberly Martin
NZ Dollar
The NZD/USD has outperformed over the past 24-hours as global risk appetite has improved. The NZD/USD sits at 0.8220 this morning.
Yesterday afternoon the NZD/USD dipped to lows below 0.8060. However, overnight it benefitted from slightly better sentiment in global markets. It likely also benefitted by association from the stronger AUD after the RBA removed its easing bias. The NZD/USD sits at 0.8220 this morning comfortably back within the 0.8100-0.8400 range that has marked its trading in recent months.
Overnight, the global dairy auction showed a 0.5% gain in average prices since last auction. This is a very strong result in the face of recent ‘risk off’ sentiment, increasing supply and stronger USD over the period. Average prices are 41.6% higher than a year ago.
NZ commodity prices remain a support for the NZD/USD.
The NZD was higher relative to its European peers overnight. The NZD/GBP has returned to trade above the critical 0.5000 level, at 0.5040 this morning. But the biggest gains were seen relative to the JPY. In a direct reversal of recent trading patterns the ‘safe haven’ JPY was shunned as risk appetite improved from low levels (see Majors). From 81.50 last evening the NZD/JPY now trades at 83.50. If risk appetite improves further we would expect the rebound to extend with the NZD/JPY trading above 0.8500 for most of H1.
Moves in the NZD/AUD have also been eye-catching over the past 24-hours. After the RBA meeting the NZD/AUD gapped lower from 0.9240 to below 0.9150. It has subsequently found some composure and returned to trade at 0.9200. We continue to see near-term see support in the 0.9150-0.9170 window.
Today, the domestic focus will be on NZ labour market reports. We suspect these could add to upward momentum in the NZD. We anticipate a decline in the unemployment rate to 6.0% (from 6.2%). Across the various components of the reports we believe there could be some signs of heat appearing. Near-term resistance for the NZD/USD is seen at 0.8290. Support is seen at 0.8190.
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Majors
Overnight, as risk appetite improved, currency performance fell into classic alignment, with AUD, NZD and CAD outperforming and JPY and CHF underperforming.
Some of the worst hit emerging market currencies experienced a rebound over the past 24-hours. For example the Turkish Lira and South African Rand are up 2.0% and 1.7% respectively. Our risk appetite index has rebounded from 39% to 47%. European equity markets were flat but the S&P500 is currently up 0.50%
US data releases were of relative 2nd tier importance. US factory orders came in at -1.5% (-1.8%) expected. Comments by Fed member Lacker were of interest overnight in light of recent speculation regarding the impact of market ructions on Fed policy. Although Lacker is a non-voting member he suggested the hurdle for any pause in Fed’s tapering should be “pretty high”. The USD index bobbed sideways around 81.10 overnight as the action in currencies was elsewhere.
The AUD was the star performer over the past 24-hours. It gapped higher yesterday afternoon after the RBA removed its easing bias and moved to a neutral policy stance. The market now prices only a 20% of an RBA rate cut in the year ahead. The AUD was further boosted overnight by the general improvement in risk appetite. The AUD/USD sits at 0.8940 this morning.
By contrast the ‘safe haven’ JPY fell from favour as the market became more risk seeking overnight. From intra-night lows of 100.80 the USD/JPY rebounded to 101.60 this morning.
Last night the UK released its PMI Construction index at 64.6 (61.5 expected). This helped give the GBP a boost. From intra-night lows around 1.6260 the GBP/USD now trades around 1.6320.
Tonight, EC January Services PMI data will be released along with EC retail sales data for December. However the focus will be across the Atlantic on the release of the US January ADP employment report. This is often seen as a precursor to Friday’s US payrolls report. A solid reading (185k expected) could help extend the nascent improvement in global risk appetite.
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