More to Q4 retail sales strength than the RWC

By Kymberley Martin

NZD

The NZD/USD continued to consolidate its recent gains overnight. It traded up to 5 month highs of 0.8420 before returning to trade around 0.8360 currently.

Yesterday’s NZ retail sales data initially gave the NZD a bit of a boost. Q4 retail volumes surged 2.2%q/q (1.2% expected) to be up 6.8%y/y. These headline results, and their component detail, such as accommodation and hospitality, were consistent with stimulus from the Rugby World Cup. However, there seemed more to it than that. There was sufficient strength in the detail of the Q4 surprise result for us to nudge up our Q4 GDP forecast from 0.6% to 0.7%.

The NZD/USD then drifted up over the course of the evening, finding resistance at the familiar 0.8420 level before subsiding to 0.8360 this morning.

The early morning Fonterra auction showed global dairy prices fell 3.0% on average. This was the biggest move since July last year, but it was no surprise to see a drop given declines in other commodities since the previous auction. Despite the reasonable downward move, prices are still within a very tight 5% range over the past six months. 

The NZD made steady gains relative to a broadly weaker EUR (see Majors). The NZD/EUR traded up from 0.6360 to 0.6400 currently, an all time (post-Euro) high.
The NZD surged higher relative to the AUD after the NZ retail sales release. The NZD/AUD subsequently treaded water in a tight range around 0.7800.

In the day ahead, we get the Business NZ PMI along with the ANZ Consumer Confidence Index. For the cross the release of AU employment data at 1.30pm (NZ time) will be important.

Majors

It has been a period of relative consolidation in currency markets over the past 24-hours. The USD strengthened relative to the EUR.

Markets were jostled by news headlines overnight, with no clear direction. After solid gains in Asian equity markets, the Euro Stoxx 50 closed up a modest 0.20%. The S&P500 that was attempting to retest highs is now down 0.20%. Global commodity prices were fairly range-bound. Our risk appetite indicator (scale 0-100%) has subsided from 57% at the start of the week, to 52% now.

Much of the overnight news continued to focus on Europe. The ECB signalled it may distribute profits from its Greek bond holdings to help bolster the aid program. Italian PM Monti suggested demands on Greece are probably ‘excessive’ and also called on Germany to reviews its stance on Eurobonds. Further delays in the Greek/troika negations have been announced. In hard data, Q4 Eurozone GDP was shown to contract 0.3% (-0.4% expected). This is not yet an official recession, but half way there. The EUR/USD fell off from overnight highs above 1.3180 to 1.3070 currently.

Overnight, the USD generally saw upward momentum, benefiting from EUR weakness. US data was mixed. US industrial production was flat in January (0.7% expected).

However, the Empire Manufacturing release for February came in at 19.53 (15.00 expected), its highest level since mid 2010. The USD index rose from lows last evening around 79.10 to 79.60 currently.

The GBP/USD traded in a range around 1.5700 for most of the night, the level it holds currently. UK data showed that unemployment in the 3 months to December remained at 8.4%. The Bank of England released its inflation report, with Governor King stating the UK had been able to absorb a 25% depreciation in the GBP without triggering wage inflation. In the near-term it appears there is little to convincingly turn the down-trend in the GBP around.

Today, across the Tasman we get the release of employment data. Tonight, US housing data and the Philadelphia Fed survey will be released.

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