After a push higher the NZD has retreated somewhat although it is still at elevated levels against the EUR and GBP and especially the AUD

By Kymberly Martin

NZ Dollar

The NZD/USD has traded within a familiar range over the holiday season.

It ended last week toward the lower end of that range, at 0.7700.

Over the past fortnight, in holiday-thinned trading and an absence of key NZ data releases/events, the NZD/USD has not broken any new ground. It made an end-of-year strive for glory, poking its head above 0.7840.

However, as the New Year has opened with a surge of US strength the NZD has suffered along with most of its peers. On Friday, the NZD/USD traded down from 0.7820, to end the week at 0.7700. Support remains at 0.7680 ahead of the December lows of 0.7610.

Over the longer-term we continue to expect further NZD/USD weakness. We target 0.7000 by end-2015 and 0.6600 by end-2016.

The NZD has strengthened against its key European peers over the past fortnight, although giving back some of its gains against the EUR in the New Year. The NZD/GBP and NZD/EUR now trade at 0.5020 and 0.6410 respectively.

Meanwhile, the NZD/AUD used the end of the year to push up to new cyclical highs above 0.9590, but has subsequently slipped to trade around 0.9520.

It looks to be another relatively low-key week on the domestic front. The only scheduled data releases are Wednesday’s ANZ commodity price index and Friday’s building permits.

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Majors

The broad theme for currencies over the holiday season has been of USD strength. This has been particularly pronounced in New Year trading.

We enter 2015 with our global risk appetite index (scale 0-100%) hovering around 47%.

Equity markets remain relatively subdued. The S&P500 trades at a similar level to our last daily publication (19 Dec).

The oil price has continued to tumble, with the WTI price now just above US$52/barrel, more than 50% below its 2014 highs. The broad CRB global commodity index is now at its lowest level since mid-2009.

The debate will remain fervent regarding whether the collapsing oil price essentially represents excess supply (net positive for global growth) or diminished demand (a worrying sign for global growth).

Data over the past fortnight, however, have confirmed the foundations for solid US growth are in place. Just prior to Christmas the latest reading of US Q3 GDP showed upward revision to 5.0%q/q. ann. At the end of last week the US Dec ISM Manufacturing index printed at 55.5. Although slightly disappointing expectations (57.5) it shows this US sector remains well in expansion. The USD index currently trades at 91.1, its highest level since late 2005.

Meanwhile, Friday night’s final reading of the Eurozone Dec Manufacturing PMI showed it clinging on to expansion, at 50.6 (50.8 expected). The EUR/USD has been on a fairly steady downward path over the holiday season, trading at 1.2000 currently. This is its lowest level since mid-2010. Tonight, German CPI data (Dec) will be released, and consensus expects a mere 0.3%y/y.

The GBP has started the year on the back foot. On Friday night, the Dec UK Manufacturing PMI came in at 52.5 (53.6 expected). Subsequently the GBP/USD slipped from around 1.5550 to end the week below 1.5330.

Trading in the USD/JPY over the past fortnight has hugged the 120.00 level. It currently trades at 120.50. The final reading of the Japan Dec Manufacturing index will be released this afternoon. The prior reading stood at 52.1.

The AUD/USD ended last week a little lower (close to 0.8090), after pushing above 0.8200 at the end of 2014. Today the AU AIG Performance of Manufacturing Index for December will be released. The prior reading (50.1) had only just poked its nose into expansion.

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