by Raiko Shareef
NZ Dollar
The NZD saw a lacklustre trading session for the most part, but is higher this morning after liquidity-inspired USD move lower.
The NZD was effectively unchanged against the USD in the early hours of this morning, having largely kept within a 30-point range between 0.8520 and 0.8550.
But around 7am NZT, the currency squeezed higher along with other major currencies. NZD/USD poked its head above 0.8560, and currently sits at 0.8550.
Moves against the major crosses were also fairly limited, with the exception of the AUD, following that currency’s strong gains over the session. This has taken NZD/AUD lower by 0.4% to 0.9360.
We note that this cross within striking distance of its 50-day moving average, which has not been broken since February.
There are no local data releases due today, so local traders will take their cues from offshore. Expect continued scrutiny around China, amid speculation that some policy stimulus may be forthcoming.
The CNY fix at 2.15pm NZT has become substantially more interesting for the Asian session. Yesterday, the yuan was set 0.04% stronger after four consecutive days of weakness which had seen it slide a cumulative 0.25%.
While that might have calmed a few nerves, investors remain jittery, and a sell-off in China-associated risk will very likely flow through to NZD.
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Majors
The USD is broadly weaker this morning, after a sudden sell-off was likely exacerbated by poor liquidity and USD long positions being stopped out.
The AUD was the strongest performing currency overnight, despite another disappointing data release out of China. The HSBC PMI’s ‘flash’ reading printed at 48.1 in March, down from 48.5 in February, and against expectations of improvement to 48.7. The AUD/USD was sold immediately after the release, but quickly recovered. It then continued to gain, rising by 0.6% to 0.9130 this morning.
This remarkable buoyancy has been attributed to investors believing that Chinese data tone has become negative enough to warrant a policy response from Beijing. This “bad news is good” dynamic for risk assets harks back to days of crises past. The Shanghai Composite equity index initially fell by 0.2% before rallying to finish the day 1.0% higher.
In Europe, France’s ‘flash’ PMI for March shocked markets by rising from 49.7 to 51.9 – this first above-50 reading since July 2011. But sentiment was smacked lower by a poor German PMI, which fell to 53.8 (against 54.5 expected). Risk tone was also dampened by headlines relating to Russian troops arrayed across Ukraine’s borders, and Ukraine’s deployment of its army in response.
As a result, the EUR had been looking downbeat, but surged sharply right on the New York fix (7am NZT).
Major currencies all rallied against the USD, in what traders characterised as an oversupply of US dollars. The moves were likely exacerbated by the US Dollar Index hitting the 80.0 level, around which orders to exit long USD positions were probably grouped.
This was a story of poor liquidity, rather than any particular news story.
The only event of note through our day will be RBA Deputy Governor Phil Lowe’s scheduled remarks in Hong Kong. With the AUD/USD bumping up against its 200-day moving average, the RBA will no doubt be tempted to talk it lower.
Tonight, Germany’s IFO survey will be closely watched in the wake of last night’s poor PMI showing. Other data of note include UK CPI and US consumer confidence.
Other news: * US Markit PMI printed at 55.5 vs 56.5 exp.
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