By Mike Jones*
There is no shortage of stories and data to catch up on this morning and a broadly weaker USD across the FX spectrum.
Beneficiaries of the weaker USD include the NZ$, which after a slow London morning closer to the US73 cent level will open this morning challenging the US74 cent level.
Strength in the commodity market is also an outcome of the weaker USD environment, where poor US data and commentary from Asia has hurt sentiment towards the greenback.
As we have noted in past days USD sentiment is in the doldrums, commercial and real money accounts show ongoing appetite for the NZ$ on shallow dips and again last night this proved the case.
The NZD is now challenging the upper levels of our “fair value” models range of 0.7200-0.7400.
Looking ahead we are still a day away from this week’s most important release for the week, the NBBO (National Bank Business Ouutlook) survey. On balance, our gut feel is businesses’ optimism will ease a bit further. The domestic picture should remain something of a drag on the NZD cross rates this week.
On the day expect interim support to lift to the 0.7360/0.7380 window while the 0.7420/0.7440 will provide some resistance.
It’s been a busy night of data and commentary from various officials and market players. The mood in the London morning was certainly more circumspect as the market’s fretted about a possible move by Moody’s on Spanish ratings this week.
In analysts views its possible Spain will lose their AAA rating, but as long as Moody’s move is only one notch and doesn’t place the nation on negative outlook then they will simply be matching Fitch and S&P’s current stance on Spain.
Sovereign debt remained the focus thanks to comments from S&P about Ireland, their concern piqued if the cost of AIB recapitalisation exceeds EUR35bio, which “could trigger a further ratings downgrade”.
Comments from Chinese officials turned the mood though, the EUR higher after Chinese Vice Minister Fu Ying spoke of a positive view on the EU steps on debt. The EUR accelerated gains when former PBOC advisor Yu Yongding commented that the USD is “one step nearer” to a crisis as debt levels in the US economy increase.
He also lamented that any appreciation of the USD is “temporary” and a devaluation of the greenback is inevitable.
Weak Consumer Confidence in the US as well as a limp Richmond Fed Manufacturing Index further coloured the weak USD sentiment.
The EUR challenging the 1.3600 level after Consumer Confidence printed at 48.5 (53.2 previous) and the Richmond Fed printed -2 (11 previous) with their respective September updates.
Not part of the broad currency rally was GBP, despite some improved data releases.
GBP initially rose, challenging the 1.5900 level after Q2 GDP was confirmed at 1.2% and the Q2 Current Account printed at a 7.4bio deficit.
To ice the cake the CBI report on Sales soared to a reading of 49 in September from a previous paltry 25.
However, acknowledged dove from the BOE Posen managed to scupper the GBP advance as he commented on the UK requiring more easing of monetary policy.
Posen said the central bank should resume its asset purchase programme to boost the economy.
His comments not surprisingly brought out a response from his polar opposite Sentence on the MPC who countered that there was no need to restart QE in the UK.
Last Friday’s break below the key 79.60 support level on the USD index (the lows from February and March) has lead to further USD weakness this week encouraged by further clear signs of deterioration from US economic data fostering speculation of further Fed easing.
The US 5Y Treasury auction overnight well bid at record low rates as a result of this view and also the need for some sovereign entities to recycle their USD from managing their appreciating currencies. The average yield was 1.26%, the bid to cover ratio improved to 2.96.
* Mike Jones is part of the BNZ research team.