by Kymberly Martin
NZ Dollar
The NZD/USD sits fractionally higher this morning, at 0.8520.
The release of the ANZ commodity price index passed almost without notice from the currency market yesterday afternoon. The data showed world prices for NZ’s major primary product exports fell 2.4% in July, driven by lower dairy prices. There was some offset from strong gains in meat and aluminium.
Overall it fits with the broader downtrend we see for the remainder for the year.
It also confirms the downward pressure we see on the likes of the terms of trade and current account deficit ahead.
The higher profile Global Dairy Trade auction may gain more attention from currency markets early tomorrow morning. Dairy auction prices have dropped 35% since February.
Incremental events will give a sense of changes to risks around Fonterra’s new milk price forecast of NZ$6, announced last week.
At present the risks still appear to be to the downside.
The NZD/USD has rebounded from intra-night lows below 0.8500 to trade above 0.8520 currently. There are no data scheduled domestically today.
Support for the NZD/USD remains at 0.8460, while resistance is eyed at 0.8540.
The NZD/AUD may be the focus of attention today as the RBA meets, although a low-key meeting is our expectation. The NZD/AUD currently sits at 0.9130. A strong band of support lies at the 0.9060 level.
We continue to expect the cross to trade back up toward 0.9300 by year-end. This is consistent with our view that NZ-AU interest rate differentials will widen by year-end. NZ-AU 2-year swap spreads have recently narrowed to around 130 bps. Our forecasts see these approaching a cyclical peak near 160 bps early next year.
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Majors
Most currencies have traded tight ranges over the past 24-hours. The AUD and GBP have marginally outperformed.
Markets were fairly directionless in the absence of key data releases overnight. Equities were flat to modestly lower in the Eurozone while the US S&P500 is currently up 0.4%. Our global risk appetite index (scale 0-100%) sits a little lower, at 66%. Headlines from the Ukraine and Gaza continue to dominate. Ukraine’s defence minister (optimistically?) said he’s confident they are nearing victory over pro-Russian separatists. Meanwhile Israel called a 7-hour truce in some parts of Gaza.
In this backdrop trading in the USD was tightly range-bound, while the EUR/USD has slipped slightly to sit at 1.3420 this morning.
The GBP/USD clawed back some of its previous day’s losses overnight. The UK July Construction PMI held fairly steady at 62.4, beating expectations for a slip to 62.0. The GBP/USD has climbed off intra-night lows below 1.6820 to sit just below 1.6860 this morning.
Despite Sydney celebrating a Bank holiday yesterday, AU June retail sales data were released. These came in at 0.6%m/m (0.3% expected). There were also upward revisions to April and May data. It suggests the negative impact from the AU Federal Budget was temporary.
But the growth trend is still modest and the data reaffirms the RBA’s on-hold stance, ahead of today’s meeting. The AUD/USD experienced a brief spike higher on the data delivery. But a more enduring upward move did not take place until the early hours of this morning. This took the AUD/USD from 0.9310 to 0.9330.
Today’s RBA meeting is expected to be a relatively low-key affair, unlikely to significantly impact on currently market pricing for the cash rate.
Tonight, Services PMI will be released in the Eurozone, UK and US. US factory orders are also due.
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