By Mike Jones
While we open to familiar levels, the currencies including the NZD are well off their overnight highs. It’s been something of a night for the market to chase its tail with volatility in price action reflecting a reduced desire amongst traders to hold positions ahead of this weekend’s G20 meeting in Korea.
European data as well as the clarification of “quotes” attributed to Treasury Secretary Geithner lent the European session support for asset markets, with EUR leading major currencies higher.
Though we found the NZD lagged the move, devoid of any noteworthy onshore or investor appetite of the type we have seen earlier this week at lower levels.
While the weekend’s events will take centre stage and dictate next week's sentiment, we can’t but help think the NZ$ is starting to look overstretched.
In the least, it has been all too keen to test the top end of the 0.7350/0.7550 short term “fair value” range we have evaluated.
Local economic developments have on the face of it provided few reasons to chase the NZD higher, meaning much has rested on the weakening USD leg of the equation. In this respect we also note the already long positioning on NZD/USD that is in effect.
More generally we believe the NZD will be better supported in the months ahead by the likes of NZ interest rate upside, robust commodity prices and a pick up in GDP growth through the 2011 calendar.
This should keep the NZD stronger for longer, indeed we have just upped our peak a couple of cents to 0.7700 out to June 2011.
Our local week of data closes on a quieter note after yesterday’s releases.
Yesterday Consumer confidence fell to an index reading of 113.6 in October according to ANZ Roy Morgan. This was a relatively sharp drop from September’s 116.4 reading and was the lowest outturn since August 2009. Be that as it may, the level of the index is still consistent with modest retail sales growth which is all that we are forecasting. Consequently, the decline does not have us scurrying to lower our growth expectations.
Credit card billings rose 0.9% in the month of September. As with all the other spending data for the month, these figures will have been positively impacted by a pre-GST spend up and negatively impacted by the Canterbury earthquake. To the extent that we can make any sense of the data through the noise, the outturn appears to be a little disappointing and suggests downside risk to our September month and retail sales forecasts.
As mentioned, volatility and traders’ reluctance to hold positions has made for a mixed night in markets.
Through the European session asset markets were generally buoyed by strong German PMI, expected upgrades to German growth forecasts from the government though sentiment was clouded by weak French PMI data and poor retail updates from the UK.
QE remains on the front page of financial media in the UK with the Chancellor noting one day after his toil with the fiscal axe that the BOE has the “freedom to deploy monetary tools” at their disposal.
The New York session has seen a retreat in risk appetite. US data is playing its part at the margin with the Philly Fed, Leading Indicators and Jobless Claims amongst the releases. While the latter improved on a weekly basis revisions deterred any enthusiasm.
Revisions and retractions were a feature of the media as over enthusiastic journalists took some artistic license to comments from Geithner, and even managed to erroneously publish Chinese FX Fix data yesterday.
As we head into the G20 there are “source” leaks that consensus will not be reached this weekend, but may be left for the November meeting to forge amongst the members around the table.
There’s also commentary that the Chinese are very mindful of the outcomes of the 1985 Plaza Accord. Following that agreement the rapid acceleration in the value of the Yen saw a plunge in exports, a rise in unemployment and a massive contraction in economic activity. Some would say that Japan has never really recovered in the subsequent quarter of a century.
For the record yesterday’s raft of Chinese data printed near consensus, suggesting a stabilisation in Chinese growth and further normalisation of policy rates equating to a further rate hike in Q1 2011.
* Mike Jones is part of the BNZ research team.