By Raiko Shareef
NZ Dollar
The NZD is one of the best performers overnight, but once again this was at the whim of global sentiment.
NZD/USD is up 0.7% for the day at just below 0.7900.
Certainly the news flow from local sources has not been particularly supportive.
New Zealand’s terms of trade fell by 4.4% in Q3, coming off its record high, driven mainly by the well-known decline in dairy prices.
The latter are starting to have an impact on the government’s account, with both Finance Minister English and Prime Minister Key noting that the reduction in export receipts was contributing to lower tax revenue. These headlines served to keep downward momentum on NZD.
In the end, though, it was a broad USD sell-off that saw NZD snap higher.
The NZD/AUD cross is up another 0.6% to 0.9270, now perilously close to breaking the downtrend set over 2014. This resistance sits at 0.9310.
Today, we see the ANZ commodity price index, which we expect to ease further. Tonight’s dairy auction will be very important, as it is likely the last before Fonterra updates its payout forecast for the 2014/15 season. The co-op will need to see a large bounce in dairy prices if it is to stave off a downgrade to that forecast.
Today, we pick resistance at 0.7930, and support at 0.7810.
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Majors
Commodity prices have rebounded and the USD sold in a resounding reversal of Friday’s night moves. The inability to hold USD/JPY above 119, and speculation that the collapse in oil had gone too far, seems to have driven market sentiment.
It was not looking nearly so positive for commodities and linked currencies as the market opened yesterday. Crude oil and gold seemed poised to post further losses (2% - 3%), and the AUD looking set to make a break for 0.8400. Other major currencies were also probing recent lows against the USD). These eventually managed to find a base, but it seemed wholly unlikely that the USD would be significantly weaker this morning.
But that is the case. Moody’s Rating Service’s downgrade of Japan’s credit rating was the turning point. The agency dropped Japan by one notch to A1, taking it one notch below China and four below Aaa-rated Germany and the US. Moody’s was primarily concerned with Japan fiscal picture, in the wake of the delay to a planned sales tax hike.
JPY immediately weakened by 50 pts against the USD, taking USD/JPY above 119. However, that appeared to be a bridge too far for the USD bulls, and the pair collapsed by 100 pts in short order, before continuing to drift lower to trade below 118 earlier this morning.
This inspired USD weakness across the board, with the Bloomberg Dollar Spot Index 0.4% softer for the day. The NOK has leapt to the top of the leader-board, posting a 1.5% gain against the USD, heartened by a bounce in oil prices. WTI crude is up 3.7%, while gold has gained 3.5%.
EUR/USD is 0.3% stronger this morning despite a soft set of manufacturing data. The final reading for Germany’s manufacturing PMI in November printed at 49.5, below the ‘flash’ reading of 50.0, and the lowest reading in 17 months. This pushed the euro-zone measure down to 50.1, from the ‘flash’ 50.4.
In the US, the Markit manufacturing PMI was marginally disappointing at 54.8 vs 55.0 exp, though this was outweighed by the more-venerable ISM survey printing at 58.7 vs 58.0 exp. That prompted a brief flurry of USD buying, which was later reversed. Some attention was drawn to the ISM’s ‘prices paid’ measure, which collapsed from 53.5 to 44.5, likely reflecting the decline in oil prices.
Early this morning, we had some hint of how the Fed is going to approach that phenomenon in its decision making. NY Fed President Dudley spent a considerable period of time discussing the significant benefits for the US household, and hardly touched on the disinflationary impacts. This bodes well for the USD bulls heading into the 16-17 December FOMC meeting.
Fed Vice Chair Fischer is on the wires as this note goes to pixel, but seems to be concentrating on financial stability, rather than monetary policy.
Today’s calendar is probably the quietest for this week, with some Australian GDP partial data to contend with, ahead of appearances by Fed speakers Fischer, Yellen, and Brainard. No change is expected from the RBA policy meeting this afternoon.
* China official PMI 50.3 (50.5 exp, 50.8 prev)
* China final HSBC PMI 50.0 (as exp and prev)
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