There’s been quite a bit of newsflow over the past 24 hours but only modest changes to currencies. The USD has recovered a little following the hammering at the end of last week, with USD indices up about 0.2-0.3%. This has come despite softer-than-expected readings for ISM and construction spending data.
NZD is little changed from last week’s close, sitting close to the 0.72 mark. There was some modest upside yesterday afternoon as the market saw Chinese PMI data in a positive light. In actual fact, the data were mixed, with the official manufacturing measure dipping below 50 but the non-manufacturing index rising to a 7-month high and the Caixin manufacturing index much stronger than expected. The boost to risk currencies from the data proved to be temporary.
Earlier in the morning Fonterra held the milk price forecast at $4.25 and slightly upgraded its earnings estimate for FY2017. This was of some relief, as there was a small chance of the milk price forecast being downgraded. The next GDT auction result will be announced in the early hours of tomorrow morning. A couple of banks are picking a strong increase in prices, based on NZX dairy futures, but we’re a bit less optimistic.
The CAD and AUD are two of the worst performers, with AUD/USD down 0.4% at 0.7565. WTI oil prices are down almost 4% for the first day of trading in August, following the 14% fall last month, and dipped below the USD 40 per barrel mark for the first time since April.
The USD oil rig count continues to rise, raising concerns about increasing supply at a time when seasonal factors will soon cause a fall in global demand.
The weaker AUD might also reflect some positioning ahead of the RBA’s latest statement at 4:30pm today. Most believe a rate cut decision is a finely balanced call, with our NAB colleagues in the minority expecting no change. With a 25bps cut about two-thirds priced, the AUD will react today, but the NZD’s behaviour during July during a period of many announcements relevant to monetary policy, leads us to believe that any AUD reaction is unlikely to be sustained for long.
GBP is back below the 1.32 mark, not helped by a much softer final reading for the UK manufacturing PMI. As a flash estimate had already been released, the much weaker final outcome suggests that the most recent responses later in the month were much weaker than the earlier responses. CFTC data suggest speculative short GBP positioning at their highest level since data were collected from 1992.
JPY is slightly softer this morning, with USD/JPY up 0.2% to 102.30. Japan will release the details of the 28 Trillion yen package today. Going by past trends the risk is for an underwhelming release, with much made of the headline figure, but new spending for the coming year is likely to be much more modest than that.
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