by Mike Jones
NZD
The NZD’s friends appear to be failing the currency once again. Overnight, as the USD was broadly in favour the NZD/USD slipped from 0.7660 to trade around 0.7540 currently.
Yesterday’s Fonterra’s payout forecast for the new season was not as bad as feared – a mild positive surprise. Fonterra’s first payout forecast range for the 2012-13 milk season is $5.95 to $6.05 (total for a fully share backed supplier). This is down 50 cents (7.7%) from the (downwardly revised) $6.45 to $6.55 for the season just ending.
The NZD/USD took the announcement in its stride and was fairly well supported until last evening.
Overnight, despite a better tone in equity markets, currency markets appeared unconvinced (see Majors).
The “safe haven” USD remained firmly in demand, resulting in declines in the NZD along with most of its key peers.
The NZD/USD slipped steadily overnight to around 0.7540 currently. It looks set to re-test key support at 0.7520 today. A break of this level would pave the way for a test of support at 0.7460.
The NZD also lost ground on key crosses. The NZD/AUD sits around 0.7690, with key support seen at 0.7660.
Similarly, the NZD/GBP at 0.4790 is sitting a little precariously above key support at 0.4780.
Today, there are no local data releases ahead of tomorrow’s Budget announcement. Expect the currency to be driven by global risk sentiment and headlines from European policy makers tonight.
Recent comments from German officials however, have poured cold water on expectations for profound developments at the meeting, and placed the discussion of Eurobonds off the agenda.
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Majors
Broad USD strength was the key theme overnight.
For much of the night, currency moves appeared slightly out of synch with equity markets. Equities posted notable 1.6% to 3.4% returns in Europe. Our risk appetite indicator (scale 0-100%) moved up to 46% from 37% at the end of last week.
Equities appeared buoyed by the slightly-better-than expected US existing home sales data (3.4%m/m vs. 2.9% expected). There were also vague hopes of more supportive policies being announced at this week’s European summit.
To some extent the move in equities may have been more of a technical bounce after recent sharp falls. The improvement in equities was not reflected in global commodity prices. The CRB global commodity index continued its recent descent, falling 1.2% overnight.
The “safe haven” USD remained in demand overnight. The USD began its ascent in the backdrop of a very weak EUR, that appeared not to share any of the equity market’s latent hope. The EUR/USD slipped from 1.2800 to trade around 1.2680 currently.
The GBP/USD was on a roller-coaster last night. Data showed headline CPI fell to 3.0%y/y (3.1% expected) in April from 3.5% previously. This is the lowest rate since February 2010, and suggests more pressure on the Bank of England’s MPC to consider extending its Quantitative Easing program.
The GBP/USD fell from above 1.5840 to trade below 1.5780 currently. We will get further insight into BoE thinking tonight with the release of its most recent minutes.
The AUD joined the NZD in its descent overnight. The AUD/USD traded from above 0.9920 last evening to around 0.9820 currently. The key for the AUD/USD today will be whether key support at just below 0.9800 can hold. If not, it will open the way for a further falls. Today the AU leading indices will be released.
Elsewhere, the Bank of Japan meets today. No change in rates is expected.
Tonight, the Eurozone current account is released along with UK retail sales data. We will get further insight into the US housing market with US house price, mortgage applications and new home sales data.
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