by Kymberly Martin
NZ Dollar
The NZD/USD rose modestly early on Friday evening holding onto the gains overnight. It opens this week around 0.8380.
There was little in the way of domestic news flow on Friday, but the NZD/USD rose in the face of broad USD weakness through the evening.
The gain in NZD/USD over the past fortnight is at least partly attributable to recovering global risk sentiment.
Our risk appetite index (scale 0-100%) has bounced back from 39% at the beginning of February to 63% at present. This turnaround has been in sync with the NZD/USD appreciating over 3.5% from a low of 0.8085.
Continued recovery in risk appetite should support its move to the upper-end of the 0.8100-0.8400 range we see for H1 2014.
Today, the local focus is New Zealand’s Q4 retail sales numbers, due at 10.45am. We are looking for a fairly hefty 1.6%q/q result, while consensus looks for 1.7%. Our forecast would see volumes rise 4.1%y/y.
We also suspect today’s January PSI release will show the NZ services sector remains firmly in expansion (December 57.5). Combined these results should help support the NZD/USD today.
The rest of the week sees a collection of second-tier releases locally, including the fortnightly Global Dairy Trade auction (Wed), weekly mortgage approval numbers (Wed), and quarterly producer price data (Thu).
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Majors
The USD weakened on Friday while the AUD and GBP outperformed.
The week ended on a fairly benign note. Our risk appetite index has inched up a little further to 63% and equities provided modest positive returns. US data releases were mixed. January industrial production disappointed expectations (-0.3%m/m vs. 0.2%).
However, the February University of Michigan consumer confidence survey surprised to the upside (81.2 vs. 80.2 expected).Overall the USD sustained a gentle downward drift to end the week just above 80.10.
The EUR initially gapped higher when data showed German Q4 GDP beat expectation at 0.4%q/q (0.3% expected). This was followed by data showing EC GDP, as a whole, was stronger than expected at 0.3%q/q (consensus 0.2%). While the EUR/USD initially spiked above 1.3710 it was unable to hold onto the gain and ended the week just above 1.3690.
The GBP also continued its recent push higher on Friday night. The upward momentum in the currency, inspired by the BoE’s growth forecast upgrades earlier in the week, seems to be sustaining. The GBP/USD gapped through a key resistance level on Friday night to end the week around 1.6750. This is the currency’s highest trading level since November 2009.
The AUD/USD held onto gains on Friday evening, to end the week around 0.9030. On Friday night IMM data showed the speculative community further pared short AUD positions from -55.5k to -47.4k. Over the weekend, China money supply and loans data showed a rise in financing. This may help allay fears of a credit-supply induced slowdown in 2014. This could help support the AUD/USD at the start of the week. AUD/USD resistance remains at the January highs around 0.9090.
It will be a relatively quiet start to the week offshore with the US celebrating Washington’s Birthday public holiday.
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