NZD underperformed despite risk sentiment improving and outperformance of other commodity currencies; USD TWI was 0.3% lower on weak US data releases and strong Canadian GDP; AUD remains in favour on rising hard commodity prices

By Jason Wong

There has been a truckload of data to digest and a number of news stories over the past 24 hours.  The NZD has been a net loser, finding itself at the bottom of the leaderboard yet again, rounding off a poor month, and going against the grain of better risk sentiment and outperformance of the other commodity currencies.

The NZD is lower across the board again, although much of the damage was done during local trading hours, after the ANZ business outlook survey showed weaker inflation indicators.  Confidence and activity indicators held up surprisingly well considering the poor winter and heading into an election campaign.  The data had little impact on the NZ rates market so we can’t help think that poor positioning in the NZD is the bigger story here than a fall in inflation expectations (which the RBNZ itself notes as “unreliable”).  It has been a familiar refrain all month, which began with (surprisingly) record net long speculative positioning in the NZD.  Such skewed positioning has seen the NZD fall steadily through the month, and it is on track to end about 4½% down in August against the USD, with a similar fall on a TWI basis.

From a pre-ANZ survey level of around 0.7200, the NZD fell to around 0.7170 and fell another 25pips after the latest Colmar Brunton survey showed National had lost its long-standing lead as the preferred party.  A low of 0.7132 was reached before soft US data helped the NZD to recover back to the 0.7175 mark.  QV house price data released this morning had no market impact, showing prices up 1.2% over the past 3 months, but falls across Auckland, Wellington and Christchurch.

The USD TWI-majors index is down 0.3% for the day.  It was up 0.5%, continuing to show a nice recovery heading into month-end, before weak PCE deflators (as expected) saw a significant unwind.  It wasn’t all bad news, as the Chicago PMI remained very strong and Bloomberg’s consumer comfort index rose to a fresh 16-year high, while pending home sales data were softer than expected.  The USD got another kick down after US Treasury Secretary Mnuchin was interviewed on CNBC and said that while the short-term direction of the dollar doesn’t concern him, a weaker dollar is “somewhat better” for US trade.

The fall in the USD wasn’t all about the weak inflation data though, as the release coincided with strong Canadian GDP data and this affected the various USD indices.  The CAD is nearly 1% stronger for the day, as expectations were lifted for another BoC rate hike later this month or in October, seeing USD/CAD approach the 1.25 mark, while NZD/CAD has fallen 1.3% to 0.8970.

EUR is fairly flat around the 1.19 mark.  Inflation data showed a lift in the headline rate to 1.5%, but core inflation remaining soft at 1.2%.  A Reuters report suggested that the ECB will use next week’s meeting to formally discuss the pace of asset purchases going forward, but it was “highly unlikely” that any decision would be made.  And three “unidentified people familiar with the matter” suggested that pressure was building for a gentle, rather than rapid, reduction in the pace of asset buying because of concerns about EUR strength.  EUR fell to as low as 1.1823 before the USD reversal saw a strong recovery to the current level of 1.19.  NZD/EUR got to as low as 0.6009 and a break into the 0.50s seems inevitable, but the cross currently sits at 0.6030.

The AUD remains in favour against a backdrop of rising hard commodity prices and a 2½% boost to oil prices has been helpful as well.  Capex data were stronger than expected, highlighting an improved outlook for non-mining investment.  The AUD is up 0.5% to 0.7945 and the NZD’s underperformance saw NZD/AUD break below the March low of 0.9074, opening up a gap to the next level of technical support around the 0.89 mark.  The cross currently sits at 0.9035.

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