by Raiko Shareef
NZ Dollar
The NZD is weaker this morning, following positive US data released overnight (see Majors).
In the wake of that release, the NZD/USD fell by 0.6% and currently sits at 0.8290. Prior to that, the currency had continued to trade in the tight range that we observed over Tuesday’s session.
The latest move does not quite challenge the first line of support we see at 0.8280, and topside resistance at 0.8380 remains untested.
We resign ourselves to range-trading, barring any fireworks from Fed Chair Yellen this evening.
As it turns out, the AUD was more bloodied than the NZD overnight, which takes the NZDAUD higher by 0.2% to 0.9260. This places the cross just below short-term resistance at 0.9280, which has not been convincingly tested since January. A disappointing Australian capital expenditure result today could see this challenged.
Today sees a clutch of second-tier NZ data releases for the month of January.
We anticipate that a 20% y/y gain in exports will be enough to pull the annual trade balance back into surplus.
For the migration numbers, we see another strong net inward gain.
And this afternoon’s high-LVR data for bank lending will surely affirm another result below the RBNZ’s target (10%).
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Majors
It was a night of USD strength, which gained against all the major currencies as well as a wide swathe of emerging market currencies.
A positive data outturn on the US housing market sparked the rally in USD. Purchases of new homes unexpectedly jumped by 9.6% m/m in January, taking the annualised pace of buying to the highest since July 2008. The number beat even the most optimistic economist surveyed by Bloomberg. The market appeared to be poised for another disappointing, weather-related result. Caught off guard, the US Dollar Index quickly rallied by 0.4%, to its current level of 80.50.
The worst performer for the evening was the AUD, which has fallen from above 0.9020 to trade around 0.8950 this morning. Yesterday’s soft construction work data for Q4 2013 had little to do with this currency weakness. But for completeness, we note that it printed at -1.0% against expectations of +0.2%, and presents some slight downside risk to the NAB AU Q4 GDP forecast of 0.9% q/q. Today’s capital expenditure survey will give a better picture of overall investment in Australia, as well as the first estimates of 2014-15 spending.
Yesterday, China’s State Administration of Foreign Exchange released a report stating that two-way capital flows will become the “new norm” for China and that the exchange rate is likely to become more volatile as US Fed stimulus is wound back. The statement seems consistent with the prevailing view among analysts regarding the CNY’s recent volatility, which is that the Chinese authorities are trying to introduce two-way risk to the currency. The CNY’s rapid depreciation decelerated yesterday, as it weakened just 0.02% against the USD.
Lastly, the JPY was the best performing major currency against the USD overnight, and we suspect it has benefitted from some safe-haven buying. The recent Chinese jitters aside, Russia’s decision to conduct a surprise military exercise on Ukraine’s doorstep has the potential to cast a pall of unease on risk assets generally. Watch this space.
Tonight, the major event will be Fed Chair Janet Yellen’s delayed testimony to the US Senate. Markets will seize upon any comment she makes about the recent weather. Given the backdrop, we suggest she avoids any small talk based on that particular subject. Elsewhere, Euro-zone consumer confidence, German retails sales, and US durable goods orders will likely be data highlights overnight.
* German GfK consumer confidence printed at 8.5 in March vs. an unchanged 8.2 expected.
* UK Q4 GDP was unchanged at 0.7% at the second estimate, as expected.
* US MBA mortgage approvals fell by 8.5% vs. -4.1% previously.
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