by Raiko Shareef
NZ Dollar
The NZD has surged higher overnight, riding a wave of positive risk sentiment and benefitting from a positive AUD story.
The NZD/USD is 0.8% higher this morning at 0.8490, having snapped resistance at 0.8450. The currency poked its head above the 0.85 level earlier this morning. We eye short-term resistance at 0.8540, ahead of 0.8590.
The strong Australian data released yesterday saw NZD/AUD fall by 0.6% to 0.9320. The cross staged a recovery through the evening, but has since fallen back to around 0.9330. As with yesterday, the strong risk-driven bid heavily favour the NZD/JPY, which gained a further 1.4% to 87.40, the highest level since 2008.
The upshot of all this is that the NZ TWI hit its highest level since last April’s all-time high. Overnight, the TWI reached 79.50, just 0.2% shy of the all-time high of 79.70.
Should US non-farm payrolls disappoint tonight, a challenge of that level would not be surprising. This morning, it sits at 79.30.
Locally today, NZ’s wholesale trade data for Q4 are due. BNZ are expecting a 1.1% q/q increase in sales value. A softer print would put place downside risk to our 0.8% pick for Q4 GDP, given the disappointing building work data earlier this week.
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Majors
Investors bought into risk overnight, with the USD and JPY sold heavily.
The AUD was the clear outperformer, after some outstanding local data. Retail sales rose by 1.2% m/m in January, far outstripping the 0.4% expected by markets, and marking ninth consecutive monthly increase.
Separately, the trade surplus shot higher from $591m to $1.43b in January, against expectations of a decline to $100m. Exports rose by a stunning 3.7% m/m. Overall, these data repeat the message that activity is being driven by exports and household spending, while business investment remains subdued. AUD/USD has screamed higher by 1.2% since yesterday morning, breaking cleanly through 0.90 and sitting at 0.91 this morning.
The EUR is also up strongly, as the ECB made clear that the odds of further policy easing are very slim. ECB President Draghi noted that data since the previous meeting has largely been positive, confirming the Bank’s baseline scenario of a moderate recovery in Europe. That said, Draghi was careful to maintain a dovish tone, “firmly reiterating” that “key ECB interest rates [are] to remain at present or lower levels for an extended period”. EUR/USD gained 0.8%, convincingly breaking the 1.38 level, and is currently at 1.3860.
The market continues to remain sanguine about risks from Russia’s stand-off with the rest of the world. Overnight, the US slapped travel sanctions on Russian or Ukrainian citizens deemed to be involved in the seizure of Crimea.
Similar measures are expected from the UK and the EU. Some analysts describe this as the worst point in US-Russian relations since the Cold War. We remain cautious that risk assets could be vulnerable to a sharp correction, should rhetoric or actions take a turn for the worse.
Tonight, the main event will be US non-farm payrolls for February, with the market expecting some bounce from the recent run of poor results. Forecasters anticipate 150k jobs to be added, against 113k previously. Anything in the 200k region would be strongly positive for USD, and could engender some significant retracement from the recent gains in risk currencies.
We will also closely be watching RBA Governor Stevens’ testimony to Parliament at 11.30am NZT today. He is unlikely to be particularly happy about last night’s surge in the AUD, especially since the latest policy statement brought back references to the AUD being too “high”.
Other news:
* German factory orders for January 1.2% m/m vs 0.9% expected.
*The Bank of England made no change to policy settings.
*US January factory orders -0.7% m/m vs -0.5% expected.
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