By Raiko Shareef
NZ Dollar
The NZD has pulled back from the brink, steadying on a broader USD sell-off as well as a relatively stable dairy auction. NZD/USD is 0.7% stronger at 0.7780.
Last night’s Global Dairy Trade auction saw dairy prices edge 0.3% lower, after the last auction’s 1.4% bounce. This plays with the grain of our view that prices should stabilise around these levels, before recovering moderately in the second half of 2015.
NZD dipped slightly on the negative headline, before recovering. We regard the result as marginally supportive for the currency, but certainly nothing to get excited about. We retain a more negative outlook than Fonterra does, with a 2014/15 payout forecast of $4.90 vs Fonterra’s $5.30 estimate.
We had thought that the 0.7700 level looked at risk of breaking yesterday, but some mild paring of USD long positions across the board has helped to lift NZD off its lows.
Today, the 0.7800 figure should provide some resistance, ahead of 0.7850. We suspect 0.7700 will hold today, but are wary that a strong US jobs report on Friday night might provide the impetus to break it.
Today, we expect our local employment report to show a modest improvement, with the unemployment rate picked to dip from 5.6% to 5.4%.
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Majors
After the ructions in the last few trading sessions, last night’s was decidedly tamer. The USD eased off its highs, though oil-linked currencies such as CAD and NOK are weaker as crude oil prices resumed their decline.
The latter is where the focus remains this morning, with WTI (the US benchmark price) down by 2.4% after Saudi Arabia cut its prices for oil exported to the US. The fall in WTI dragged Brent lower by 2.1% to $83.0, near its lowest level since 2010.
The effect of that has percolated through financial markets, with equity indices softer thanks to the declining fortunes of energy companies. The Euro Stoxx 50 close 1.6% lower, while the S&P 500 is currently 0.4% weaker.
Major oil exporters Russia, Canada and Norway were amongst the biggest losers in the currency space, with their currencies weakening between 0.3% and 0.8% against the USD. That bucked the general trend of USD weakness.
For example, EUR managed to find a bid despite the European Commission significantly downgrading its outlook for the single-currency bloc. It now sees GDP growth of 0.8% y/y and 1.1% in 2014 and 2015 respectively, down from the 1.2% and 1.7% projected in May.
Some commentators attributed EUR’s gain to a news report of rising friction between ECB President Draghi and conservative members of his Governing Council. To the extent that it delays the introduction of sovereign bond-buying (as Draghi would need to get the Germans on side), the EUR’s modest rise can be rationalised, in the near-term at least. But if stimulus is delayed, then the euro-zone’s outlook will surely deteriorate further, and weigh on EUR significantly over the medium-term.
Yesterday’s data bonanza in Australia created some violent price action in the AUD. The Australian Bureau of Statistics simultaneously announced strong retail sales (+1.3% m/m vs +0.5% exp) and a weak trade balance (-2.3b vs -1.9b exp) for September. At the same time, the Bureau announced revisions for its thoroughly-discredited employment survey, adjusting the unemployment rate higher to 6.2%. The investors had little idea what to do with this information, which saw AUD track from 0.8690 to 0.8710 and then collapse to 0.8650 in the space of five minutes, before recovering all that ground within the next hour.
The AUD managed to steady its feet above the 0.87 level after the RBA November policy statement, which contained very little change. The market must have been slightly wary of a softer tone, given global jitters in October, but that was not to be. AUD/USD sits 0.6% higher this morning at 0.8730.
Today, we receive services PMI updates from China and the euro-zone. In our time-zone, BoJ Governor Kuroda’s scheduled speech may garner interest, after last week’s surprise further policy easing. Tonight, US ADP employment will be watched.
Other news:
*UK construction PMI +61.4 vs +63.5 exp.
*US trade balance -43.0b vs -40.2 exp.
*US factory orders -0.6% m/m, as expected.
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