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By Mike Burrrowes
NZD
The NZD has surged higher overnight, led by hopes European political leaders will announce further measures to stem the debt crisis.
These hopes have helped buoy risk sentiment and spurred NZD/USD up almost ¾ cents to 0.7910 currently.
Yesterday’s newly created NZ Employment indicator showed filled jobs fell 0.3% in the month of July. We are forecasting a 0.3% increase in jobs for the September HLFS, which will see the unemployment rate drop to 6.4%. Yesterday’s employment indicator suggests modest downside risk to this forecast but, equally, a small bounce in August and September (perhaps Rugby World Cup related) will see us back on track.
Either way, there is nothing in this to move us from our view that the unemployment rate is likely to fall as the year progresses.
The NZD posted gains against both the EUR and GBP overnight. NZD/EUR rallied early in the evening to above 0.5800, from 0.5780. The cross spent the rest of the evening oscillating around the 0.5800 level. NZD/GBP made better gains, rising from 0.5000 to around 0.5070 currently.
The NZD/AUD has spent the evening treading water around the 0.7950 level. The cross appears to be holding strong, despite a decent fall in the NZ-AU 3-year interest rate differential to -104bps, from -97bps yesterday. Should this interest rate differential remain steady, it suggests the cross could fall towards 0.7850 in the near-term.
Looking to the day ahead, with no local data due for release expect the NZD to take its cues from offshore.
For the day ahead, initial support on NZD/USD is eyed at 0.7840 and resistance at 0.7970.
Majors
Investor sentiment in markets overnight was buoyed by hopes European political leaders will announce an expansion to the EFSF. As a result, the risk sensitive NZD and AUD were the strongest performing currencies against the USD over the past 24 hours. The risk-on mood pressured the USD index down 0.5% to 77.60.
The ebullient mood saw a broad based recovery in risky assets. In equities, the S&P500 index and Euro Stoxx 50 index gained 2.7% and 5.3% respectively. The financials sectors of the Euro Stoxx 50 index gained a whopping 7.9%. Our risk appetite index (scale 0 – 100%) rose to 24.8%, from 23.9%. The CRB (broad index of global commodities) surged 2.4% higher, although the index is still down over 9% for the month.
Not surprisingly, EUR/USD has surged higher on hopes European political leaders will announce an expansion to the EFSF, either by increasing its capital or using more leverage. Overnight, EUR/USD has surged to 1.3640, from just above 1.3500.
While doing little to dent sentiment, several European policy makers were quick to pour cold water on the rumoured expansion to the EFSF. In particular, German Finance Minister Schaeuble noted boosting the fund was a 'silly idea'. The comments overnight seem to be more political jostling, as the lower German house is due to vote on the previously announced amendment to the EFSF this week. Should this pass, then European leaders may be more open to further expanding the EFSF to stem contagion from the Greek debt crisis.
Further boosting sentiment was news Greek lawmakers have passed the deeply unpopular property tax. This will be a welcome development to the Trokia (EU / IMF / ECB) and increases the likelihood of the next aid payment is released. A decision on the aid payment is expected from the Trokia before October 3.
In the US, the CaseShiller home price index for July showed some light improvement. Consumer Confidence for September disappointed at 45.4 (vs. 46 expected), while the Richmond Fed Mfg Index improved to -6 (vs. -11 expected). Federal Reserve member Fisher grabbed headlines with a serve at the FOMC – judging from the tone of the comments he won’t be at Ben’s for Thanksgiving this fall. Fisher noted that FOMC policies may work against job creation and the benefits of “operation twist” don’t outweigh the costs and exposes the Fed to losses when rates rise.
The GBP was boosted overnight by the improvement in global risk sentiment, although with no concrete plan from European leaders further gains will be hard fought. GBP/USD is currently trading at 1.5660, after starting the evening trading around 1.5570.
The risk sensitive AUD, CAD and NZD rebounded strongly overnight. AUD/USD has gained almost 1 cent overnight to be trading around 0.9950 currently. Likewise, USD/CAD has fallen from 1.0240 to 1.0160 currently. We expect the volatile trading to continue as there is still a lot of water to pass under the bridge before a credible solution is reached to help stem the European debt crisis.
Looking to the day ahead, expect the trails and tribulations of the European debt crisis to keep trading in FX markets volatile. There is little in the way of data, with only US durable goods orders and German CPI due for release.
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See our interactive swap rates charts here and bond rate charts here.
Mike Burowes is part of the BNZ research team.
1 Comments
I often wonder why a 3/4 of a cent change is called a "surge"
My reading would be that the NZ $ is actually rangebound against the Ozzy $ , at 79 to 80 cents and 78 to 79 cents to the US $ , its been like this all week and its not a " surge" which in most dictionaries is defind as a strong or vigourous forward movement .
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