By Kymberly Martin
The USD index has consolidated its gains from the end of last week. The NZD/USD traded sideways yesterday while NZ celebrated Labour Day, but has dropped in the early hours of this morning to now trade at 0.7130.
The USD index was on the ascendancy at the end of last week. It has traded a bit of a range since then, gaining a boost early this morning from the release of the US Markit manufacturing PMI. At 53.2, the above-consensus reading was its highest this year. The USD index now trades at 98.80, close to its highs since February this year.
Equity markets provided modest positive returns. With around one quarter of the S&P500 companies having reported earnings for Q3, earnings overall are beating reduced expectations. Oil and gas and financial sector companies in particular are providing positive earnings surprises. Our global risk appetite index (scale 0-100%) sits at a fairly healthy 65%.
The AUD traded higher last evening, but has subsequently given back all of its gain. A stronger USD and weaker commodity prices in the early hours of this morning likely contributed. From intra-night highs of 0.7640, the AUD/USD now trades below 0.7600. The next hurdle for the AUD will be tomorrow’s release of AU Q3 CPI. Our NAB colleagues expect headline inflation to print at 0.7/0.8%q/q (slightly above consensus). They see underlying CPI at 0.4%q/q which would align with the RBA’s most recent forecasts.
Meanwhile the NZD/USD traded a very tight range from Friday evening through to yesterday evening. Domestic trading yesterday was curtailed by the NZ Labour Day holiday. However, the NZD/USD has slipped in the early hours of this morning in the backdrop of a stronger USD. It now trades below 0.7130.
Trading on the crosses has been fairly uneventful. However, a fairly steady decline in the NZD/AUD since the start of the week has taken the cross down to 0.9370. The 200-day moving average sits not far below, at 0.9335. The cross now sits within the short-term ‘fair value’ range derived from our models. Our forecasts are consistent with a period of consolidation in the cross around current levels, plus or minus a couple of cents.
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