by Raiko Shareef
NZ Dollar
The NZD topped the G10 leaderboard overnight, though lagged gains among emerging market currencies. It is 0.3% stronger against the USD at 0.8790.
The kiwi was on the up along with the AUD over much of the past 24 hours, with high-yielding currencies generally outperforming as US bond yields declined.
A brief blip lower on headline weakness in yesterday’s QSBO was reversed fairly easily.
Overnight, Fitch Ratings affirmed New Zealand at AA, but revised the outlook from stable to positive. While the report hardly provided anything new to the debate, the endorsement provoked a push through 0.8800, breaking the level for the first time since August 2011. It struggled to hold onto these gains, and lurks just below this morning.
While a test of the 2011-high at 0.8840 looks technically appealing, we remain cautious in the midst of the current shakedown in equity markets.
On the other hand, this morning’s speech by RBNZ’s Chief Economist John McDermott is more likely to be NZD supportive than not. On the topic of “potential output”, we suspect the content confirm that NZ’s current pace of growth is higher than its non-inflationary potential, creating the price pressures that the RBNZ is pushing against with rate hikes.
Today, there is little technical resistance ahead of 0.8840. Support continues to build at 0.8720.
To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.
----------------------------------------------------------
Majors
Emerging-market currencies were the top performers against the USD overnight, accompanied by the developed-market high-yielders AUD and NZD. Other majors were generally little changed.
The EM currency outperformance probably had more to do with idiosyncratic factors than widespread appeal of the class. The top-performing ZAR strengthened in relief following the end to a long-running labour dispute. Second-placed IDR continues to benefit from market expectations that anti-corruption candidate Joko Widodo will win a race for Indonesia’s presidency.
It is slightly odd that the EM spectrum is doing so well in the face of an equity market sell-off. The S&P 500 is down 0.75%, while the Euro Stoxx 50 has shed 1.40%. Analysts are pointing to some unease among investors about unjustified valuations, ahead of the Q2 US earnings seasons which begins this morning. The VIX volatility index has gapped higher from its Friday close, up 2.0 points to 12.2.
The AUD went along for the ride, supported by a positive business confidence reading. The NAB Business survey for June showed improvements in both current conditions and confidence. The AUD/USD is 0.3% higher, just shy of 0.9400. It failed to sustain a look above that level overnight.
In the northern hemisphere, the GBP shrugged off poor data, with industrial production down 0.7% m/m (exp. +0.3%) and manufacturing production off by 1.3% m/m (exp. +0.4%). Along with downward revisions to prior releases, these data will make the BoE’s expectation of Q2 GDP at +0.9% q/q very hard to achieve. But GBP/USD is back to flat for the day after a look lower, treading water at 1.7130.
In the US, the JOLTS job opening report printed better than expected at +4635, nearly back to its 2007 peak. On the other, the NFIB dropped unexpectedly to 95.0 (exp. 97.0), though the details were more promising. No discernible reaction to these.
Tonight, the Fed’s FOMC Minutes for June are due to be released, but shouldn’t reveal much more that we gleaned from Chair Yellen’s press conference. In our day, China’s CPI reading for June might get a look.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.