Opinion: Currency activity light on Thanksgiving
28th Nov 08, 9:19am
by
By BNZ Currency Strategist Danica Hampton
NZD/USD has spent most of the past 24 hours trading choppily within a 0.5450-0.5550 range.
Small gains across Asian and European equities, largely thanks to China's aggressive rate cut, combined with solid demand for AUD from real-money accounts saw NZD/USD climb above 0.5500 last night. Although steady selling out of Japan, thought to be related to uridashi flows and retail margin accounts, has helped temper demand for NZD/USD.
For the most part, currency markets have turned a blind eye to the terrorist attacks in Mumbai and activity has been relatively light with US markets closed for the Thanksgiving holiday.
Yesterday's monthly trade data showed that oil-fuelled imports exceeded exports by $942m during October, pushing the annual goods deficit to $5.22b. And the monthly NBNZ Business confidence (an oxymoron?) survey was yet another indication that this economy is not only unwell but is likely to stay that way for some time to come. Our economists are confident the RBNZ will cut rates at least 100bps to 5.50% when they met next week and a larger move, perhaps as much as 150bps, shouldn't be completely ruled out.
For today, expect NZD/USD to continue taking its cues from global equity markets. A solid performance from Asian equities could well send NZD/USD through initial headwinds in the 0.5550 region. However, we suspect month-end flows (USD demand related to currency hedge adjustments and MSCI re-weighting is anticipated at tonight's London fix) and expectations of aggressive RBNZ action next week should ensure bounces are limited to the 0.5600 region. On the downside, solid support is expected on dips towards 0.5450.
Currencies spent the night consolidating within familiar ranges and activity was relatively light given US markets were closed for the Thanksgiving holiday.
Stock markets edged higher across Asia and Europe last night, following yesterday's strong close from Wall Street and China's aggressive interest rate cut. However, Indian stock markets were closed after a terrorist attack in Mumbai left more than 100 people dead (it's not known when trading will resume). The FSTE climbed 1.8% and the German DAX rose 2.3%.
Despite the rebound in European equities, EUR/USD spent most of the night trading choppily within a 1.2860-1.2960 range. Last night's EU Commission surveys confirmed that activity in the Eurozone is slowing sharply. The business climate indicator fell to -2.14, from -1.34 in October, its lowest level in 15 years. And consumer confidence fell to -25, from -18 in October, matching the low seen back in 1994.
ECB President Trichet was also on the wires last night talking about the Mediterranean economies saying "risks to economic growth have increased in view of the global economic slowdown". Given the recent string of soft Eurozone data the ECB may be forced into easing aggressively easing next week. Most economists expect the ECB will cut 50bps to 2.75% when it meets on 4 December, but a 75bps move would not be completely out of the question.
GBP/USD inched above 1.5500 last night, bolstered by the solid performance from UK stocks and a report suggesting the UK housing market is not quite as dire as anticipated. Nationwide house prices fell 13.9%y/y in November, slightly better than the 15.1%y/y forecast. Over the past few months, the Bank of England has embarked on aggressive rate cuts to stave off the worst ravages of the UK economic slowdown and slashed interest rates by 150bps at its last meeting. Economists expect the Bank of England to cut rates by at least another 50bps when it meets next week.
In the near-term, expect currencies to continue taking cues from global equities. A strong performance from Asian stock markets could well provide a bit of a boost for EUR/USD today. However, given the dire state of the global economy and anticipated month-end demand for USD, we suspect EUR/USD will struggle to break above 1.3000.
* 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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