By Kymberly Martin
NZD
The NZD/USD was relatively range-bound as markets consolidate ahead of the EU summit at the end of the week. The NZD/USD currently trades around 0.7790.
In relatively subdued markets overnight, the NZD/USD traded between 0.7830 and 0.7750, returning to trade in the middle of this range currently.
The NZD lost ground relative to the AUD yesterday. The decline was initially triggered by the stronger than expected AU Q3 GDP release (see below). Thereafter, the NZD/AUD drifted off to trade around 0.7570 currently.
Relative to the EUR, the NZD moved a little lower in some choppy trading early this morning. It moved down from above 0.5820 to just above 0.5800 currently.
The NZD/GBP fell back below 0.5000 overnight. In the early hours of this morning this cross began a steady descent. It appears that strength in the GBP overnight was flow related, as opposed to being influenced by fundamentals, which remain weak. The NZD/GBP traded down to 0.4960 this morning.
In the day ahead, all attention will be on the RBNZ announcement. Rates are widely expected to remain at 2.50%. However, we expect the RBNZ to maintain a medium-term tightening bias. The key data release for the NZD/AUD cross will be the AU employment report, released at 1.30pm NZ time.
Majors
Markets once again traded in a relatively tight range as they await the EU summit. The USD index is a little lower this morning around 78.40.
Equity markets gave up a little ground overnight. The Euro Stoxx 50 closed down 0.50% and the S&P500 is currently flat. Our risk appetite index (scale 0-100%) is fairly steady at a modest 36%.
The EUR/USD traded above 1.3450 last evening, before trading to as low as 1.3350 early this morning. It currently trades at 1.3420. German industrial production data was surprisingly robust at 0.8%m/m (0.3% expected). This allays some fears that the financial crisis is undermining real economic activity in core Europe. Overnight news flow suggests the ECB may announce a range of measures to stimulate bank lending today, at its meeting. It is also expected to cut rates by at least 25bps.
The GBP surged higher in the early hours of this morning. It appears this was one-off in nature, tied to a cross-border deal, as opposed to based on fundamentals. In fact, UK data was characteristically disappointing, with industrial production coming in at -0.7%m/m (-0.3% expected). The GBP/USD moved up from 1.5620 to 1.5700.
The AUD had a brief surge higher after the release of Australian Q3 GDP. It came in at 1%q/q, some way above market expectation (0.8%q/q). There were also upward revisions to previous quarters, so the annual growth of 2.5% was well above expectation (1.9%). Solid growth was widespread across capital and household spending, not just mining. The AUD/USD rose 0.40% over the past 24-hours, currently trading around 1.0280.
Today, the AUD will take its cue from the AU employment data release. Central banks will be in the spot-light with the ECB, BoE and RBNZ all announcing interest rates.
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Kymberly Martin is part of the BNZ research team.
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