RBA expected to hold today, but next Aussie move may be down; NZD may have peaked vs AUD says BNZ

by Kymberly Martin

NZ Dollar

The NZD/USD has traded between 0.8340 and 0.8380 over the past 24-hours, at the upper-end of this range currently.

Yesterday’s domestic data continued the theme of an economy firing on all cylinders. NZ’s Q4 merchandise terms of trade increased to its highest level in at least 40, verging on 153 years.

This broader story of domestic strength may help to support the NZD even in the face of deteriorating global risk appetite.

Our global risk appetite index has fallen to 58% currently from 65% at the end of last week, as the situation in Ukraine remains tense.

However, the NZD/USD has managed to hold its composure over the past 24-hours and currently sits not far from where it ended last week, just below 0.8380.

Key resistance remains at 0.8430, which has marked the top of the currency’s trading band since the start of November. Near-term support is eyed at 0.8340.

The NZD was on the ascendancy relative to its European peers overnight. Early this morning the NZD/GBP has once again poked its head above the crucial 0.5000 level. It trades at 0.5020 currently.

All eyes will be on the NZD/AUD cross today as the RBA announces rates. While the cross started the week above 0.9400 it has been unable to hold onto this level, trading around 0.9370 at present.

We continue to see the January peak on the cross, above 0.9500, as marking the cyclical highs. We see a level in the low 90s as more consistent with trans-Tasman relative fundamentals.

Today, it is relatively quiet on the domestic data front, except for the release of the ANZ commodity price index.

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Majors

In the face of ongoing geopolitical uncertainty the USD has strengthened further over the past 24-hours.However, the JPY has outperformed.

Uncertainty surrounding the situation in the Ukraine remains high. Headlines of a standoff between Russian and Ukraine forces in the Crimea buffeted markets.

The Russian ruble has dropped to all-time lows and the Russian Central Bank has stepped in to unexpectedly raise its benchmark rate by 150bps. Meanwhile, the US Secretary of State, John Kerry, travels to the Ukraine today. A significant toll was taken on equities (Euro Stoxx 50 down 3%, the S&P500 currently down 1%).

Unsurprisingly in this backdrop, the USD and JPY both strengthened as ‘safe haven’ plays, although moves were not dramatic. The USD/JPY trades at 101.50 this morning.

Data delivery was very much in the back-seat overnight. However the GBP did show some volatility around data releases. It was briefly spurred higher by data showing UK mortgage approvals at 76.9k (74.5k expected). The GBP/USD has subsequently subsided to trade at 1.6700 currently.

The AUD managed to creep higher overnight, despite the subdued backdrop for risk appetite. The AUD/USD sits just above 0.8940 this morning as the market awaits the RBA meeting today. The Bank is unanimously expected to remain ‘on hold’ today, after it recently formally removed its easing bias. However, Governor Steven’s comments later in the week (Friday) will be watched closely. Following last week’s soft AU capex data, the market now prices around a 40% chance of a further RBA rate cut by year-end.

Tonight, the UK construction PMI will be released.

Other news:
* February Eurozone Manufacturing PMI (final) 53.2 vs. 53.0 expected.
* February UK Manufacturing PMI (final), 56.9 vs. 56.8 expected
* US February Manufacturing ISM, 53.2 vs. 52.3 expected

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