Opinion: Kiwi unlikely to push higher today, watch for National Bank Business survey

Opinion: Kiwi unlikely to push higher today, watch for National Bank Business survey
Danica HamptonBy Danica Hampton The past 24 hours have been a bit of a roller coaster for the NZD/USD. After falling to nearly 0.5520 yesterday evening, the local currency was squeezed above 0.5600 as the night progressed. Overnight, the NZD/USD was bolstered by improving risk appetite and a generally weaker USD. Investor confidence was helped by better than expected US consumer confidence and tentative signs of that pace of the decline in the US housing market is easing. Comments from the ECB's Smaghi hosed down expectations that the ECB will introduce quantitative easing measures at its May meeting. The net result saw the USD weaken generally, EUR/USD surge from below 1.3000 to above 1.3150 and NZD/USD was dragged up above 0.5600. We suspect NZD/USD will struggle to push higher near-term. The USD has started to recover as US equities slipped into negative territory and the Chinese Finance Minister Chen said the USD will remain the main currency for international trade. Nor should we forget the RBNZ is expected to cut interest rates at tomorrow's OCR Review. Current market pricing is consistent with about a 50% chance of a 50bps cut to 2.50% this week and the OCR troughing somewhere between 2.25-2.50%. We continue to think the market is underestimating the scope for further monetary policy easing "“ we look for a 50bps move this week and an eventual trough of 2.00%. The other notable local event is today's National Bank Business Survey. It will be interesting to see if April's update looks as dreadful as last month (and Q1's QSBO) or whether there'll be tentative signs of improvement. Also keep an eye out for March's trade balance (10:45am) and the RBNZ household credit data (3:00pm). For today, we suspect NZD/USD will struggle to push above 0.5640-0.5650. Solid support is seen around the 0.5490-0.5500 region. The USD slipped against most of the major currencies last night. Upbeat data out of the UK and US helped bolster investor sentiment, while comments from ECB officials dampened expectations of quantitative easing. Worries about a swine flu pandemic still linger, but the panic is starting to dissipate. While the number of confirmed and suspected cases has continued to grow, to date, fatalities have only occurred in Mexico. Even the beleaguered Mexican Peso (MXN) managed to regain about 1.5% against the USD last night. Elsewhere in the world, investor sentiment has been bolstered by better than expected data. In the UK, the CBI Distributive Trade Survey painted a less glum picture of the retail sector. In the US, the economic data also positively surprised. The Conference Board measure of consumer confidence rose to 39.2 in April, well above forecasts for 29.7. While the US housing market remains in a dire state, the pace of decline may be easing. The CaseShiller house price index fell 18.63%y/y February, up slightly from the -18.97% decline recorded in January. While European equities slipped nearly 2%, US equities are more or less flat. Not only was Wall Street cheered by the US data, but the US Treasury has worked about a preliminary deal to keep Chrysler out of bankruptcy. The FTSE fell 1.7%, the DAX dropped 1.9% and the S&P500 is currently down 0.2%. The backdrop of firm US equities and upbeat data helped reduce "˜safe-haven' demand for the USD. The ECB's Smaghi also doused expectations that the ECB will introduce quantitative easing measures at its next meeting. The net result saw EUR/USD surge from below 1.3000 to above 1.3150. Comments from China's Finance Minister Chen helped stave a bit of the weakness in the USD. Chen said the USD will remain the currency of choice for international trade and warned that the signs of recovery in China's economy are "not solid". We suspect EUR/USD will struggle up towards 1.3180 and look for correction back towards 1.3000. There is quite a bit of US news to watch for tonight. The market is looking for US GDP to contract 1.1-1.2%q/q in Q1, but this is considerably better than the outcome last week in the UK and that expected for Germany. The FOMC decision is also due tomorrow. The Fed will likely keep the fed funds rate steady in the 0-0.25% target and investors will be looking for any new developments on the quantitative easing front (we expect little change). ____________ * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.

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