By Kymberly Martin
The NZD was noticeably stronger overnight gaining ground versus the USD and on the crosses, underpinned, along with its ‘commodity currency’ peers by stable, and elevated, global commodity prices.
A rise in risk appetite globally, as oil prices declined from recent highs also helped to support the NZD. Locally, yesterday’s data also failed to provide the market with new reasons to sell the NZD. House price data published by Quotable Value NZ, and the Manpower hiring survey, showed some signs of life, though admittedly these surveys were likely undertaken prior to Christchurch’s earthquake.
The house price data showed a similar story to previous months, with main cities showing prices slowly turning up again, but peripheral markets struggling/declining further. The Manpower survey notched up, with the overall employment intentions index rising to 18% from 16% previously.
Yesterday, NZ swap yields moved higher along the curve by around 4-6bp, also stemming the decline in the NZD interest rate differential with its peers that had been driving recent NZD weakness. The NZ 10 year government bond yield has also rebounded to 5.63% from recent lows following the Chrustchurch earthquake, of 5.52%. The NZD/AUD rose from around 0.7290 to close to 0.7330 overnight.
The NZD also gained ground on its European peers rising to over 0.5320 against the EUR, and from 0.4550 to above 0.4580 relative to the GBP. The NZD/GBP has now made a notable rebound from its recent lows that were previously seen in August 2010.
There are no major data releases today, but all eyes remain on tomorrows RBNZ Monetary Policy Statement, as the key driver of the NZD this week.
Majors
The USD was broadly stronger overnight, with the ‘commodity linked’ currencies, NZD, CAD and AUD the only peers able to withstand USD strength.
Risk appetite rose overnight, as the oil price fell, with Kuwait saying it was engaging in talks with other Opec members to boost production. Our risk appetite index, (that has a scale from 0-100%) climbed back to around 66%. The gold price declined from yesterday’s record highs, as its ‘safe haven’ appeal diminished. The USD 10 year yield rebounded to around 3.55%. The CHF was the weakest performer overnight, also representing a decline in demand for ‘safe haven’ assets.
Representative of improving risk appetite, equity markets showed a solid rebound with the Euro Stoxx 50 up around 0.5%, and the S&P500 currently up about 1%. In the absence of specific data releases, the USD index rose from 76.40 to 76.80 overnight. It found support in an environment where sentiment toward the USD had become very negative, as illustrated by the record speculative short positions that had built up in the USD, as recently published by CFTC.
The EUR/USD failed to gain ground overnight despite ECB policymaker Weber saying, ‘I see the signalling of a rate move as quite necessary’, in reference to President Trichet’s comments last week. Asked if markets were getting ahead of themselves in pricing in rates at 1.75% (from record lows of 1% currently) by December, he replied ‘I don’t want to correct them’.
In addition, German factory orders yesterday were above expectation rising 2.9%m/m in January (2.5% expected) to be up 16% y/y. Despite this, and Weber’s comments, the EUR declined in the backdrop of broad USD strength, from 1.3980 to 1.3900. The EUR also remains in the shadow of renewed debt concerns, as a Greek debt auction overnight remained light on foreign bidders.
GBP was also under pressure as a measure of UK retail sales, the BRC like-for-like sales monitor declined 0.4% (0.7% rise expected) in Feb. The GBP/USD fell from around 1.6200 to close to 1.6150.
The AUD/USD was virtually flat, ending the night just above1.010 where it had started. Along with the CAD/USD and NZD/USD that provided positive performance overnight, the AUD was likely supported by commodity prices that remain at elevated levels.
Today, Australian consumer confidence, home loan and investment lending data will be released, along with German industrial production, and US mortgage applications and inventory data.
Mike Jones and Kymberly Martin are part of the BNZ research team.
All its research is available here.
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