Opinion: Kiwi$ hits 10 month high at nearly 67 USc

By Danica Hampton NZD/USD rose to a 10-month high of nearly 0.6700 last night. Once again, improving risk appetite was the dominant theme in currency markets. Last night's optimism was buoyed by better than expected manufacturing data from the UK, Europe, the US and China. Data suggesting the global manufacturing downturn is nearing a bottom convinced investors the global economy is on the road to recovery. Solid earnings reports from HSBC and Barclays, along with strong gains in US automaker shares, also helped bolster global equities. In fact, the S&P500 gained 1.5% and climbed above 1,000 for the first time since last November. The backdrop of improving risk appetite and hopes about a global recovery saw the USD weaken broadly as investors felt more comfortable holding riskier currencies. The most speculator gains were seen in the majors "“ EUR/USD and GBP/USD both rose about 1.5% and the USD Index fell to a 10-month low. However, NZD/USD was also dragged higher in the slipstream. Some month-end NZD demand has been noted from real-money accounts, but Asian names have shown a steady selling interest. Today's Labour Cost Indexes and the Quarterly Employment Survey wage and salary statistics are expected to confirm continued deceleration, from last year's relatively strong pace. For the QES filled-jobs series, we're looking for something in the range of 1.725 to 1.735m to "line up" with the 1.0% decrease we expect in Thursday's HLFS "official" employment results for Q2. Across the Tasman, the RBA decision is due at 4:30pm. Governor Stevens seemed to lay all his cards on the table at last week's lunch, as such no one expects a rate hike today. We'll probably have to wait for Friday's MPS for further clues on future RBA policy. For today, we suspect dips in NZD/USD will be limited to 0.6630-0.6640 region. While bounces will likely be limited to 0.6730 today, a push higher towards 0.6800-0.6850 looks likely in coming sessions. The USD weakened against all the major currencies last night as better than expected manufacturing data and strong equity gains bolstered risk appetite. In fact, the USD Index fell to 77.45 last night, its lowest level in September 2008. Manufacturing data out of the UK, US and Europe further underpinned hopes about a global economic recovery. The UK manufacturing PMI jumped to 50.8 in July, well above the 47.8 forecast. It's worth noting, the UK is now the first economy in the G7 to have broken above the 50 level that signifies expansion in the manufacturing sector. Data elsewhere in the world also suggests the manufacturing slump may be reaching a bottom. The US manufacturing ISM beat expectations, climbing to 48.9 in July vs. 46.5 forecast. Similarly, in the Eurozone, the manufacturing PMI for July was revised up to 46.3 from 42.6. In addition to the upbeat manufacturing news, solid earnings from European banks HSBC and Barclays gave equity markets a boost. Similar to banks like Credit Suisse, Goldman Sachs and JP Morgan, earnings at HSBC and Barclays have been underpinned by a strong performance in investment banking. Ford shares rose more than 6% amid signs the US government's "cash for clunkers" program is helping US auto sales. The S&P500 rose 1.5% last night, above 1,000 for the first time since November 2008. Growing conviction the global economy is on the road to recovery, combined with strong gains across equity markets, saw the USD weaken as investors felt more comfortable holding riskier growth sensitive currencies. EUR/USD surged from below 1.4250 to nearly 1.4450 and GBP/USD climbed from sub-1.6750 to above 1.6950. Looking ahead, it is an action packed week in terms of central bank decisions (RBA, Bank of England and ECB all meet this week) and economic data (including July's US non-farm payrolls report and the US's services ISM). Provided investors' risk appetite and global recovery hopes are not dented by these events, we suspect the USD will remain heavy this week. On the USD Index, near-term bounces will likely be limited to the 78.50 region and move down towards 75.90-76.00 looks likely in coming weeks. On EUR/USD, we'd view dips towards 1.4200-1.4250 as a buying opportunity and look for a push towards 1.4750 in the coming weeks. * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Capital team of economists is available here.