Markets ignore NZ confidence slip, note Govt poll gains; BofJ governor tries to talk down the yen

by Raiko Shareef

NZ Dollar

The NZD/USD closed the week at the lower end of recent ranges, dipping 0.2% to 0.8550.

Friday’s (delayed) ANZ consumer confidence survey was not one to trouble the scorers, and it’s difficult to know whether the currency market actually noticed.

The NZD hardly budged on the news that consumer confidence slipped 4.4% to 127.6.

While the NZ consumer may have been miffed by being subject to the first rate hikes in the developed world, the survey is still at a very positive level relative to history.

With the election less than four months away, markets will no doubt have taken note of two polls released over the weekend, showing National widening its lead over a Labour-Green coalition.

On the local calendar, the ANZ monthly business survey (Wed) will be the highlight, with our attention on the pricing intentions component, rather than the headline.

Today’s merchandise trade report should show another solid result for exports.

The NZD/USD kept its head above a significant area of support (0.8500-0.8540) last week, but looks likely to test the bottom of that range this week.

A break of 0.8500 would be a strong negative signal. We see topside resistance at 0.8610.

To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.

----------------------------------------------------------

Majors

A lack of top-tier data, combined with the prospect of a long weekend in the US and the UK, meant that markets drifted quietly in the week’s close. The USD continued to grind higher, with the US Dollar Index up 0.2% to 80.40.

Much of this was EUR driven, as the single currency dipped lower after a marginally disappointing outturn in Germany’s IFO business survey. The European Parliament elections also likely weighed on investor appetite for the EUR, given the expectation that euro-sceptic parties would gain ground. Exit polls coming in this morning suggest that anti-euro parties placed first in France and Greece, at least. The EUR/USD weakened by 0.2% to 1.3630, taking it below technical support at the 200-day moving average (1.3640).

Positive US data also provided some support for the USD. New home sales in April beat expectations, rising by 433k, while the March figures were revised 23k higher. Over the course of May, US data have been on the improve, with Citi’s US Economic Surprise Index above zero for the first time since mid-February.

The USD/JPY continues to rebound off the lows its saw last week, receiving a helping hand from Bank of Japan Governor Kuroda over the weekend.

In a WSJ interview, he described the yen as “still quite strong” and said “I don't think it’s reasonable to expect the yen to appreciate against the US dollar given that the US is recovering more strongly than Japan.” Kuroda stressed that the option of further easing was still very much open. Our current take is that the odds of further quantitative easing increase if USD/JPY threatens to break back below ¥100.

Most of the attention within financial markets was reserved for US equities on Friday night, with the S&P 500 closing above 1,900 for the first time, with a gain of 0.4%. Tech names including TripAdvisor and NetFlix were strong contributors to the rise, helping the NASDAQ gain 0.8%. The low volatility environment persists, with the VIX Index falling to 11.36, matching the previous post-GFC low recorded in March 2012.

There is little on the data calendar this week that can be relied upon to jolt markets to life. For one thing, New York and London are offline on Monday for Memorial Day and the Spring Bank Holiday respectively. In the Northern Hemisphere, we’ll be looking for continued improvement in US data flow. In Australia, the quarterly partial indicators for GDP start to come in, ahead of Q1 2014 GDP due on 4 June.

All its research is available here.