The USD has continued to strengthen over the past 24-hours.
The NZD has been the primary underperformer. The NZD/USD trades just below 0.6600 this morning.
The USD has continued to move steadily higher over the past 24-hours. Whether the US Fed hikes rates in September or December this year, is neither here nor there in the big picture. The US Fed is one of few Central Banks who will be reducing monetary stimulus in the year ahead. This contrasts the ECB and BoJ that look set to maintain very easy policy for the foreseeable future. This underpins our medium-term bullish USD view.
Overnight, the EUR/USD slid from 1.0980 to 1.0910 against the USD, despite a slightly below expectation reading for US Q2GDP. However, the disappointing release was mitigated by upward revisions to Q1 GDP. The GDP price index was also a little firmer than expected, at 2.0% vs. 1.5%.
The JPY also weakened overnight. The USD/JPY flirted with resistance around the 124.50 level early this morning, now trading at 124.30. Over the medium-term we see the USD/JPY trading back above its June highs of 125.60.
The AUD/USD sits a little lower, at 0.7280 this morning. It found support intra-night, just above 0.7250, its lowest level since April 2009. Yesterday’s speech by RBA Governor Stevens appeared to provide nothing to stir markets. There are a handful of 2nd tier AU data releases ahead of key developments next week. These include the RBA’s meeting, AU employment report and AU retail sales data; plenty to test the AUD.
The NZD has been the weakest performing currency over the past 24-hours, steadily losing ground against the USD and most of its peers. The NZD even declined against a weak EUR overnight, taking the NZD/EUR to 0.6040 currently.
Having recovered from its shock that recent RBNZ commentary on the economy was not as resoundingly pessimistic as it might have expected, the market seems refocused on the broader fundamentals i.e. the RBNZ remains in easing mode as the US Fed is inching toward its first rate hike. The rate of NZ GDP growth has peaked at a time when momentum is tentatively improving in the US. The dairy sector still poses downside risk to the NZ economy, and the next GDT dairy auction looms next week.
Today, the ANZ business survey will provide the latest update on confidence. Recall, the June measure had come off the boil but was still consistent with the 2.0-2.5% annual GDP growth we are forecasting. Any further fall in the July reading would start to ask some questions. NZD/USD support remains at the mid-July lows of 0.6500. Near-term resistance will likely be encountered on a move back toward 0.6650.
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