By Raiko Shareef
NZ Dollar
The NZD drifted off its highs on Friday night, and closed 0.5% lower against the USD just below 0.7780.
NZD took its cues from commodity-sensitive currencies such as CAD and NOK, which were dragged lower by still-falling oil prices.
On the crosses, the NZD/AUD has edged back from its challenge of the 0.95 figure, but remains within striking distance.
With the AUD likely to remain under pressure as commodity prices decline, we would not rule out a break above that level, though we would expect it to be relatively short-lived.
We pick a return toward 0.91 early in the new year.
This week, the local highlight will be the GDP reading for Q3, where we are expecting a 0.9% q/q gain. That said, we suspect NZD will get its broader direction cues from the FOMC meeting on Thursday morning.
Today we mark initial resistance at 0.7830, and support at 0.7720.
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Majors
Risk sentiment was palpably poor heading into Friday’s close, with the primary point of concern the continuing plunge in oil prices.
Our Risk Appetite Index sits at 36.9%, its lowest reading since October’s ‘flash crash’.
For weeks, policymakers of net oil-importing countries have been rejoicing at the effective income tax cut for consumers that a fall in oil prices (to be felt in 2015). But market sentiment has shifted to something markedly less positive. Investors now appear concerned that the failure of oil prices to find a bottom is a symptom of chronically weak global demand.
The release of the International Energy Agency’s monthly report compounded these concerns. There, the agency cut its forecast for global crude oil demand for the fourth time in five months. Much of this month’s cut stems from projected weakness in Russia demand for oil.
WTI crude oil closed 3.6% lower at $57.81, while Brent’s slide was more modest, down 2.9% at $61.85. In the rest of the commodities space, gold shed 0.3% to $1222.50, while iron ore dropped 0.6% to $68.99.
Most the pain seemed to be felt in equities, with euro-zone benchmarks faring worse, as worries about Greece’s political situation reverberate. The S&P 500 fell by 1.6%, while the Euro Stoxx 50 closed 2.9% lower.
The USD had a mixed performance, gaining ground against commodity-linked currencies, but losing against the CHF and EUR. Oil-sensitive NOK and CAD sat at the bottom of the major-currency leaderboard, down 0.8% and 0.5% respectively. The NZD and AUD were close behind, losing 0.5% and 0.3%. The CHF and EUR posted 0.4% gains against the USD. The Bloomberg Dollar Spot Index edged 0.2% lower.
A bumper US consumer confidence read failed to make any impression on the USD. The University of Michigan survey printed at 93.8 in its preliminary reading for December (89.5 exp, 88.8 prev), a fresh post-GFC high. The survey’s inflation expectations measures edged back higher, too, which should help reassure policymakers. The one-year ahead measure rose from 2.8% to 2.9%
This week is a big one for global markets, with the marquee event undoubtedly the Fed’s policy statement and press conference early on Thursday morning. Investors widely expect the Fed to present a more hawkish outlook for rates, relative to the last time forecasts were released (September).
Today, we look out for Australia’s Mid-Year Economic and Fiscal Outlook, in which the Government is expected to paint a gloomy fiscal outlook, on the back of a sharply-lower terms of trade. Japan’s Tankan survey, the US Empire survey, and US industrial production are also due.
Other news:
* Chinese activity data for November were mixed. Retail sales +11.7% y/y vs +11.5E, industrial production +7.2% y/y vs +7.5E, and fixed asset investment +15.8% YTD y/y, as expected.
* Euro-zone industrial production for October +0.1% m/m vs +0.2E, and September’s figures were also revised down.
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