By Mike Jones NZD/USD reached a new year-to-date high last night of nearly 0.6900. A positive night on US and European stock markets and better-than-expected US data initially buoyed risk appetite, supporting growth sensitive currencies like NZD/USD. The US Case-Shiller home price index rose for the second month in a row in June, a better result than analysts had expected. In addition, US consumer confidence was shown to have lifted by more than expected in August, to 54.1, from 46.6 previously. President Obama's nomination of Ben Bernanke as Federal Reserve chairman for a second term was also positive for sentiment. All of this, combined with modest gains in stocks, saw investors pare back "safe-haven" positions in USD and JPY in favour of growth sensitive currencies like NZD. As a result, the NZD surged from around 0.6850 to within a whisker of 0.6900. Solid NZD demand also pushed NZD/AUD to a fresh 4-month high around 0.8200, while the NZD/GBP continued its recent ascent, popping above 0.4200. However, the lofty highs in the NZD didn't last for long.
The NZD/USD ran into strong selling interest around 0.6900, and it was quickly forced lower. Market chatter noting repeated failures by NZD/USD to push above 0.6900 only added to selling interests. At the same time, several comments from ECB officials were seen as casting doubt on the strength of the global recovery, which prompted some unwinding of the earlier gains in US stocks and an easing in risk appetite. As a result, NZD/USD was soon trading back around 0.6850, close to where it began the night. As we have already noted, the important question near-term is whether or not investors think the global backdrop has improved sufficiently to see NZD/USD break into fresh ranges. We may get further clues on this overnight with some potentially influential data due to be released (German IFO, US durables goods and new home sales data). Ahead of these releases, we inclined to think the NZD will track around a familiar 0.6820-0.6900 range. Most major currencies depreciated against the US dollar last night. All eyes were initially on the Shanghai stock index, following further signs of weakness. Rumours a large Chinese bank would need to raise capital weighed heavily on Chinese stocks. However, with the bank subsequently quashing the rumours, the Shanghai index pared its losses to 2.6% for the day. The Nikkei fell 0.8% and the Hang Seng was down 0.5%. US equity markets largely shrugged off weakness in Asian equities as more signs emerged of a recovering US consumer. According to the Case-Shiller index, US house prices rose for the second month in a row in June, a better result than analysts had expected. In addition, US consumer confidence was shown to have lifted by more than expected in August, to 54.1, from 46.6 previously. The stronger data provided a boost for US stock markets with the S&P 500 reaching new highs for 2009 at one point during the night. President Obama's nomination of Ben Bernanke as Federal Reserve chairman for a second term was also positive for sentiment. Encouraging signs about the outlook for global growth and firming US equities provided a boost to investors' risk appetite, reducing demand for "safe-haven" currencies like the USD. As a result, most of the majors posted gains against the US dollar early on in the night. The EUR, AUD and NZD all surged to levels around the top of recent ranges. However, USD weakness was not to last. Several comments from ECB officials were seen as casting doubt on the strength of the global recovery, and some of the early gains in US stocks began to unwind. The S&P 500 is currently up around 0.2%, having risen as high as 1% early in the night. As fears about the global outlook were reawakened, risk appetite went into reverse. Early gains in EUR, AUD and NZD were soon unwound as investors sought the relative safety of JPY and USD. Once again, GBP was one of the weakest performing currencies overnight, reaching a three month low against the EUR as on-expectations Q2 German GDP figures (at 0.3%) highlighted the differing outlooks for the two regions. Meanwhile, EUR, AUD and NZD are all back to around similar levels to 24 hours prior. For today, further consolidation in currencies is expected as markets await important data releases due tonight. The August German IFO index and US durable goods and new home sales for July will likely garner the most attention from markets. * All of the research produced by the BNZ Capital team of economists is available here.