Opinion: NZ$ stuck in range, but watch for card data

By BNZ Currency Strategist Danica Hampton The past 24 hours have been relatively humdrum in currency markets. The NZD/USD edged lower last night, but remains within a familiar 0.7080-0.7160 range. Last night’s NZD/USD fluctuations largely reflected moves in EUR/USD, which in turn took its cues from crude oil prices. Oil prices traded choppily as investors digested (i) Goldman Sachs year-end forecasts of US$149/barrel; and then (ii) data that showed a huge build-up in US crude inventories. However, some NZD supply at the London fix combined with renewed interest to sell NZD against AUD (mainly from proprietary-type accounts) added some weight on NZD/USD. After hitting 0.8200 last yesterday afternoon, NZD/AUD sank to below 0.8150 last night. Looking ahead, we still think the RBNZ is on track to cut interest rates 25bps to 7.75% in September, which combined a sharp slow-down in NZ growth and a generally firmer USD should see the NZD/USD trend lower over coming months. However, given the speed and magnitude of the currency’s descent over the past month, we look for NZD/USD to consolidate near-term. In fact, the NZD/USD is currently trading comfortably within the 0.7050-0.7250 “fair value” range implied by our short-term valuation model (which is based on NZ-US interest rate spreads, NZ commodity prices and risk appetite). This suggests we’ll need to see fresh impetus either in way of very soft NZ data or a sharp change in USD sentiment to push the currency out of its recent ranges. Keep an eye out for today’s Electronic Card Transactions (ECT) and credit card billings data will provide the first hint of how retail spending fared during July. For today, expect bounces towards 0.7150-0.7160 to attract sellers. In the absence of a terrible ECT and credit card billings data, dips towards 0.7035 should find support. The USD edged higher against the major currencies last night, but it was a lacklustre session with little in the way of fresh drivers. EUR/USD traded choppily over the past 24 hours, taking its intra-session cues from changes in crude oil prices. After dipping as low as 1.4672 last night, it is currently sitting around 1.4740 still well off yesterday’s 1.4800 high. It was a choppy session for crude oil prices. Early in the session, crude prices climbed $2 to US$117/barrel after Goldman Sachs (the biggest investment bank in commodities markets) forecast oil prices to rise to US$149/barrel by year-end. However, data from the US Energy Information Administration (EIA) showed the biggest weekly increase in US crude inventories since 2001 and crude fell from US$117 to below US$113/barrel. As widely expected, the Bank of England minutes (from the August 7 meeting) indicated a 7-1-1 vote for no change. The minutes reiterated the central bank’s concern about a sharp slow-down in UK growth, but noted that elevated inflation pressures continue to hamstring any policy response. Nonetheless, the comment “inflation risks may have eased a little” along with a relatively soft CBI Industrial Trends Survey weighed a bit on GBP/USD. The headline index from the CBI survey fell to -13 in August, from -8 in July, which combined with a build-up in inventories suggests downside risks to manufacturing activity. In the absence of fresh drivers, market participants seem to have reverted back to buying USD amid concern that the slow-down seen in the US is also affecting economies elsewhere in the world. Last night, the IFO world economic climate index, which measures both current conditions and expectations, fell to 73.4 in Q3 (from 81.4 in Q2) – its lowest level in almost seven years. The worsening of the global outlook has been driven by worries about the outlook in Western Europe and Asia. The climate reading for North America rose to 62.7 from 60.9, but fell to 63.1from 75.9 for Western Europe (its lowest level since 1993) and the gauge for Asia fell to a 6 1/2-year low of 75.9. Looking ahead, we continue to think the medium-term trend in the USD is higher. The US economy is starting to stabilise, but it’s become increasingly evident that growth elsewhere in the word is slowing. As further evidence of slowing Eurozone, UK and Japanese growth comes to hand this should help keep the USD buoyant.