By Mike Jones*
It’s been a volatile ride in the NZD over the past 24 hours.
After soaring to an 11-month high a smidge below 0.7600, the NZD/USD uptrend ran out of puff and the currency finished the night below 0.7500.
Yesterday’s Australian employment data had the catering ordered, the ice in the champagne buckets – but alas no one could find the scissors to cut the ribbon at the parity party.
The 49,500 gain in September jobs (20,000 expected) propelled the AUD/USD to 27-year highs above 0.9900, but parity slipped from the AUD’s grasp as the overnight session wore on.
Along with the surging AUD, still lofty risk appetite also helped underpin the NZD overnight.
Upbeat German and UK industrial production data bolstered global sentiment and policy meetings from the Bank of England and ECB’s contained few surprises.
However, gains in the NZD/USD were scuppered later in the night. USD sentiment brightened after ECB President Trichet said he supported a “strong dollar”, and a late slide in US equities eroded earlier gains in risk appetite.
The strengthening USD shaved around 1 cent off the NZD/USD, with a rapid unwinding of speculative long positions exacerbating NZD selling.
Before long, the NZD/USD was back below where it started the night around 0.7490. Looking ahead, we’re bracing for more volatility in the NZD in the short-term.
There is little on the local data calendar today, but tonight brings the all important US non-farm payrolls release. A weak result would serve to further undermine USD sentiment.
Markets will also be keeping an eye on the outcome of tonight’s G7 meeting and the weekend’s IMF and World Bank meetings. What to do about “currency wars” will be high on the agenda.
All up, we suspect positive momentum and widening NZ-US interest rate differentials will keep the NZD/USD supported on dips. Near-term support is eyed towards 0.7400, with resistance at the overnight 0.7590 high.
Majors
It’s been a wild ride in currency markets over the past 24 hours. After tracking lower for most of the night, the USD rebounded sharply late in the night, knocking the major currencies off their highs.
The USD started the night on the back foot thanks to yesterday’s spurt higher in the AUD.
Indeed, the AUD/USD soared to 27-year highs above 0.9900 yesterday following another unbelievably strong Aussie jobs report. The report showed more than twice the expected number of jobs were added in September (49,500 vs. 20,000 forecast).
GBP and EUR were happy to join the fray in heading higher. As expected, the BoE kept its policy rate on hold at 0.5%, and left the level of asset purchases unchanged at £200b.
However, given earlier speculation the BoE could announced another bout of quantitative easing, the GBP/USD shot higher in the wake of the decision, with upbeat UK manufacturing and industrial production data also adding support.
From below 1.5900, GBP/USD jumped to an 8-month high of almost 1.6020. There was similarly no change to the ECB’s key policy rate. Still, soothing words from ECB President Trichet at the press conference helped the EUR/USD post new 8-month highs above 1.4000.
Trichet reiterated the ECB’s belief the economic recovery is continuing, underscoring markets’ belief Europe will withdraw monetary stimulus ahead of the US. Later in the night, the USD bounced back. Not only did Trichet say he supports a “strong dollar”, but US stocks reversed earlier gains, bolstering demand for “safe-haven” currencies like the USD and JPY.
After opening higher on the back of solid US jobless claims numbers (445k, vs. 455k expected), the S&P500 reversed course to end the night down around 0.5%.
Against the firmer USD, the EUR, GBP and AUD unwound most of their earlier gains. Looking ahead, the coming few days are jam-packed with event risk. Tonight, investors are eagerly awaiting US non-farm payrolls for September. Given the importance of the labour market to the US economic outlook, the data could have clear implications for whether the Fed is required to undertake additional monetary easing, and hence sentiment towards the USD.
Weekend meetings of the G7, IMF and World Bank may also have implications for currency markets. The so-called “currency wars” have jumped to the top of the agenda given all the recent attention on currency intervention.
The Q3 US earnings session also kicks off tonight, with Alcoa due to report after the closing bell.
* Mike Jones is part of the BNZ research team.
All its research is available here.
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