by Raiko Shareef
NZ Dollar
The NZD shrugged off an early-week bout of selling to sit at 0.8760 against the USD this morning, up 0.2% for the day.
Initially, it had looked like the positive USD vibes of last week’s US employment report would continue through Monday, but that wore off late in our afternoon.
From there, the NZD/USD led other major currencies on a straight line higher.
Today, once we’ve cleared the hurdle of RBNZ Governor Wheeler’s off-the-record speech (scheduled start of 7am), it’s just the NZIER’s Quarterly Survey of Business Opinion to trouble the scorers. Not that it should provoke much volatility – we expect a fairly steady message on NZ’s economic strength.
More interesting will be tomorrow morning’s speech by RBNZ Deputy Governor McDermott.
While we knew the speech was scheduled, it was only announced yesterday that it would be publicly released, on the topic of “potential output”. Despite the RBNZ’s desire for a lower currency, we suspect the speech will be NZD supportive, given ongoing discussion of a lower ‘neutral’ rate of monetary policy.
That said, it should be consistent with the relatively hawkish notes struck at the June MPS.
Today, we still see resistance at 0.8790, and strengthening support at 0.8700.
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Majors
After what was a positive start for the USD in the Asian session, major currencies regained ground to be largely flat or marginally higher against the USD for the day. The US Dollar Index is effectively unchanged at 80.2.
US bond yields failed to live up to a promising higher open, and equity markets are down across the board. Some of this can be attributed to significant disappointment in Germany’s monthly industrial production. With little else to take their cues from, investors took note of the 1.8% m/m decline, compared to a median forecast of a 0.2% gain. What’s more, with prior months revised downward, Europe’s growth engine has seen industrial production slump by almost 3% since February.
The Euro Stoxx 50 is down 0.9%, while the S&P 500 is 0.5% weaker. There is likely to be some element of profit-taking ahead of the Q2 earnings reporting season, which kicks off tomorrow night.
The EUR underperformed most majors against the USD, gaining just 0.1% to 1.3610. The overarching theme for currencies remains one of a USD that fails to fire. Despite a growing view that the Fed may need to concede that rate hikes could come earlier, the inability of US 10-year yields to sustain a move toward 3% has hamstrung the big dollar recovery.
Tonight, we see second-tier data from the US, albeit outturns we still consider interesting. We look for small business optimism to continue to improve in the NFIB Index. With small businesses providing around 60% of US jobs, the health of small businesses is important for the labour market recovery. On that note, the JOLTS job opening survey will also be watched, given that it is one component of Fed Chair Yellen’s labour market ‘dashboard’.
No doubt there will be headlines from the two Fed speakers tonight, with Kocherlakota (voter) and Lacker (non-voter) representing opposing ends of the FOMC’s dove-hawk spectrum.
Elsewhere in the world, UK industrial production might be worth a look.
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