NZD risks are to the downside; USD falls as does risk appetite; AU consumer sentiment low

By Kymberly Martin

NZ Dollar

The NZD has traded a fairly tight range over the past 24-hours to sit at 0.7710 currently.

Yesterday morning, Fonterra announced a downward revision to its 2014/2015 payout forecast as widely expected, from NZ$5.30 to NZ$4.70.

We still see risks tilted to the downside from here.

The dairy market is weak and will remain a drag on an otherwise fairly robust economy.

The NZD/USD dropped a little on the results, but its losses were not extended, likely reflecting relief the announcement was not worse. In the early evening the NZD/USD recovered from below 0.7670 to trade around 0.7710 this morning, ahead of the imminent RBNZ meeting (9am NZT) (see Fixed Interest).

There was a notable further decline in the NZD/JPY overnight. It now trades just above 91.30, down from almost 94.00 at the end of last week.

Near-term we see support for the NZD/USD at 0.7660, while resistance is eyed at 0.7780.

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Majors

The USD weakened further overnight as the JPY strengthened.

Risk appetite remained fairly muted. Our global risk appetite index has slipped further, to 53%, and equities declined modestly on both sides of the Atlantic. OPEC cut the forecasts for how much crude oil it will need to provide in 2015 to the lowest level in 12 years. The WTI oil price fell a further 4.75%, to US$60.80, its lowest level since mid-2009.

The ‘safe haven’ JPY continued its rebound. From above 119.80 early last evening the USD/JPY now trades at 118.50. In the absence of key data releases overnight, it was the JPY that really set the tone for currency markets, with the USD index drifting off from 88.70 to around 88.40 this morning.

Overnight, ECB member Hansson was quoted as saying that the possible risks associated with the ECB buying sovereign bonds may outweigh the benefits. This would align with the likes of the Bundesbanks’ Weidmann who are cautious on further easing of policy and oppose full-blown QE. The EUR/USD sits a little higher this morning, at 1.2420, from early morning lows below 1.2370.

Yesterday, the Westpac-Melbourne Institute measure of AU consumer sentiment (December) took a 5.7% hit, to 91.1.The level of consumer sentiment is now at the low end of ranges of recent years. Both the current conditions and expectations components fell. The more crucial gauge of future AU consumer activity will likely be the release of the AU employment report, due today (1.30pm NZT). Ahead of this, the AUD/USD trades at a similar level to yesterday morning, at 0.8300.

Tonight, the final reading of German Nov CPI will be released, confirming why the ECB needs to imminently take more action to fend of deflation. The ECB will publish its monthly report and the US releases Nov retail sales.

All its research is available here.