Opinion: NZ$ hits 2009 high as commodity block currencies outperform

By Danica Hampton The NZD traded on a firm note yesterday, hitting a 2009 high against the USD as risk appetite continued to dictate sentiment. Yesterday the NZD/USD rose above the US 66cent level, as commodity block currencies outperformed others. While some of the banking names reported weak results, some of the IT & retail names have helped keep equity indices performances on an even keel, further encouraging traders' appetite for risk. What we can note in our flows is ongoing real money & commercial demand for the NZD & AUD during that session, which has been joined by significant custodial name buying as well as the obligatory leveraged traders' appetite through the New York session. There has also been ongoing investment demand from a mix of counterparts throughout Asia to note in our NZD markets. Once again at times the GBP has dragged the chain, wariness and whispers around the UK banking industry clouding sentiment for the GBP and making for a somewhat subdued London session for most currencies. Ongoing stability in the commodity & oil markets is supporting sentiment for the CAD & the AUD and the NZD has neatly dovetailed in trading last night between 0.6530 and 0.6630. House price data from the US, in the form of the monthly Federal Housing Finance Agency (FHFA) price index which showed a 0.9% gain in May, helped balance the impact of a number of misfires from the earnings season reporting. The local calendar is light once more, so we'll keep an ear open for Finance minister Bill English who will be speaking on the economy to a Trans-Tasman business circle event in Wellington at 12:40pm. While across the ditch the RBA Assistant Governor Debelle speaks at a University Forum. On the day the base for the Kiwi appears in the first instance at 0.6550/0.6575 and after posting fresh 2009 highs resistance now likely towards the 0.6675/0.6700 window. Yesterday's Australian CPI passed with barely a ripple in FX markets, a range of measures printing as expected. The GBP continued to under perform, as traders take on board commentary from the National Institute of Economic and Social Research who highlighted downside risks for the housing sector and a negative outcome for Q2 GDP, the latter close to median forecasts of -0.3% amongst surveyed economists. The minutes of the BoE's July meeting revealed that the 9 member committee voted unanimously against boosting asset purchases, preferring to review this at their August meeting. For choice we still believe a further extension of QE in August is on the cards. As the minutes set out, there is little concrete evidence that the policy to date is sufficient. And as both King and Bean (and indeed Bernanke) are at pains to point out, there are a range of tools by which central banks can put QE into reverse fairly abruptly if they so wish. So stopping in August would be a riskier strategy than continuing until the end of the year. For choice, the Bank would probably like to move away from gilt purchases and towards more targeted interventions to get lending moving. But it has not yet elaborated an alternative strategy, so another round of gilt purchases in the run up to Christmas looks likely. Last night's UK CBI Industrial Trends Survey was a mixed bag, the headline figure fell to -59 in July from -51 in June. That takes the balance back to the weakest level since 1992 but probably over-eggs the weakness in manufacturing as the CBI headline measure refers to the stock of orders rather than the flow of new business. On the calendar tonight, from the UK monthly retail data as well as Home Loan readings. We also have Business confidence readings from France and Current account numbers for the Eurozone before attention goes across the Atlantic to the weekly initial jobless claims as well as existing home sales updates for May.