NZD was caught in the crossfire of a hard commodity sell-off, but local data very positive; Swiss reject gold handily; USD ascendant

By Raiko Shareef

NZ Dollar

The NZD was caught in the crossfire of a hard commodity sell-off on Friday, and closed 0.3% lower against the USD at 0.7840.

Local data had little lasting impact in the face of larger global forces.

Building consents rose 8.8% in October, bouncing back from a curious 12.2% collapse in November.

The ANZ business confidence measure continues to rebound from the +13.4 hit in September, up to +31.5 in November.

There is plenty on the local calendar this week, with a particular focus on commodities. We pick the terms of trade (Mon) to have fallen 4.1% from its all-time high in Q3.

This week’s dairy auction will be important, as it is likely the last before Fonterra provides an update to its payout forecast for the 2014/15 season.

Early this morning, RBNZ Governor Wheeler is set to give opening remarks at a conference. While we do not expect any significant news, the Governor has been known to surprise markets in the past.

Today, we mark resistance at 0.7870, and support at 0.7770.

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Majors

Oil remained on centre stage on Friday, with prices continuing to collapse and leading commodities lower across the board. Once again, prominent oil exporting nations led currencies lower against the USD.

In the fall-out from Thursday’s OPEC decision not to cut production targets, WTI crude oil posted its largest single-day loss since the financial crisis, falling 10.2% to $66.2. That is its lowest closing price since mid-2009. By comparison, the 3.4% drop in Brent was much more modest.

This weakness seeped into the commodity complex as a whole. Gold lost 1.8% to $1175.50, and the London Metals Exchange Index is off by 2.3%.

Little wonder then that oil-producers (and hard commodity producers more broadly) finished the day significantly lower against the USD. NOK closed 1.5% weaker, while CAD lost a more measured 0.8%. The broad Bloomberg Dollar Spot Index popped 0.6% higher to a fresh six-year high.

On the subject of commodities, note that the Swiss referendum, which would have forced the Swiss National Bank to hold at least 20% of its reserves in gold, failed over the weekend. While the market had expected this result, we still pick gold to soften slightly. With commodities declining across the board, the AUD should underperform and the USD should remain ascendant.

The week ahead is packed with event risk, with today no exception. During our session, partial indicators for Australian GDP will keep investors on their toes, ahead of the official China manufacturing PMI for November. The final reading for the HSBC version of that survey is also due today.

Tonight, final readings for European PMIs for November are due. The closely-watched ISM manufacturing index will overshadow the final reading of the Markit PMI in the US. Last, New York Fed President Dudley and Fed Vice Chair Fischer are to speak at separate events.

For the rest of the week, we pick Australian and euro-zone Q3 GDP (both Wed), and the US employment reports (Fri) as data highlights. The ECB meeting (Thu) is also highly anticipated.

All its research is available here.