By Raiko Shareef
NZ Dollar
The NZD weakened against the USD, along with all of its peers on Friday night. It ended the week around 0.7710.
There was really only one game in town on Friday and that was the US Nov payrolls report.
Its broad strength caught the market by surprise, causing most currencies to plunge versus the USD. The NZD was no exception.
From above 0.7760 the NZD/USD slumped to end the week around 0.7710. Crucial support is now eyed at the early-Nov lows of 0.7660.
A break below this level is possible ahead of Christmas, before the more sustained downtrend that we expect to unfold next year.
We continue to see NZD/USD at 0.7000 at end-2015. In the near-term there will be two key events for the currency this week.
First, Fonterra’s latest payout forecast (due Tues-Thurs) and Thursday’s RBNZ meeting. Fonterra is widely expected to announce downward revision to its $5.30 previous forecast.
A number in the high $4s will probably not be a negative shock to the market (and the NZD), but the low $4s would.
Meanwhile, on Thursday the RBNZ will walk a tightrope. It will likely flatten its projected 90-day bank bill track but want to retain something of a tightening bias. With the market now pricing just 35 bps of RBNZ hikes over the next two years there is certainly a chance the Bank does not go as ‘soft’ as the market expects.
On the agenda today is the release of NZ Q3 manufacturing activity data.
On the crosses, the most notable move on Friday night was for the NZD/JPY. This pushed higher on the back of USD/JPY strength to trade above 93.60. This is its highest level since it spiked toward 98.00 in July 2007.
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Majors
The USD strengthened against all its peers after a strong US payrolls report. The JPY was amongst the weakest performers.
There was not too much action in most currencies ahead of the release of Friday night’s long-awaited Nov US payrolls report.
It surprised in its strength. Non-farm payrolls came in at 314k (225k expected), and there were upward revisions to the previous month. Importantly, average hourly earnings also rose 0.4%m/m (0.2% expected). The USD index gapped higher along with US bond yields. From 88.80, the USD index ended the week at 89.30, close to its highs of March 2009.
The USD was stronger against almost all of its major and emerging market peers with the one striking exception of the Russian Rouble. The RUB/USD strengthened almost 3% on what looks to be central bank intervention. Still, it remains down 38% year to date.
With all the excitement surrounding the US payrolls report, EU data hardly got a look in. In the event, the EU Q3 GDP release was in line with expectation at 0.2%q/q (0.8%y/y). The EUR/USD ended the week at 1.2280., its lowest level since August 2012.
Meanwhile the JPY bore the brunt of USD strength, as the data brought into sharp focus the opposing future trajectories for monetary policy in Japan and the US. The USD/JPY ended the week a smidge above 121.00
It looks to be a slightly more subdued week on the US data front. However, this evening, Fed’s Lockhart will speak on monetary policy in Atlanta.
Today Japan will release its October balance of payments data and its final reading of Q3 GDP.
China will also release its Nov trade balance which has the potential to influence sentiment toward the AUD. The AUD/USD weakened along with its peers on Friday night to end the week around 0.8320. This is its lowest level since June 2010.
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