by Kymberly Martin
NZD
The NZD tumbled through key support levels as global risk appetite skidded further overnight. The NZD/USD currently trades around 0.7500.
Our risk appetite index (scale 0-100%) has fallen further, from 44% to 42%. As global equites and commodity indices suffered harsh losses, ‘risk sensitive’ currencies such as the NZD struggled.
The USD was also boosted by some solid US housing data releases (see Majors). In this backdrop, and an absence of local data releases, the NZD/USD slipped below key support to trade at 0.7500 currently.
Support is now eyed at the mid-December lows of 0.7460.
The NZD fared a little better on the crosses. As the EUR remains at the epicentre of current market concerns the NZD/EUR rose from 0.5930 to almost 0.5970. In choppy sideways trading the NZD held its ground versus the GBP and AUD.
Eyes will be back on local data today with the release of the Budget and the trade balance.
We expect the NZ Government is will hand down another ‘zero Budget’ – mainly an exercise of spending and income tweaks and reprioritisation, with no material policy announcements that haven’t already been ‘leaked’.
We expect preservation of the previously outlined path to surplus by 2014/15, with lost ground, to date, made up for by a tighter rein on expenditure growth, meaning net debt still peaking below 30% of GDP.
With this, we expect a conditional tick from the rating agencies.
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Majors
The USD continued to surge higher over the past 24-hours as risk appetite fell further. The ‘safe haven’ JPY was the only currency to outperform the USD.
Any latent optimism of a break through at the current European officials meeting seemed to collapse overnight. The Euro Stoxx 50 closed down 2.70%, and the S&P500 is currently down 0.40%.
Global commodity prices (CRB index) fell a further 1.80%. The index has now fallen around 24% since this time last year.
As well as being supported by general ‘safe haven’ flows, the USD was boosted by further solid US housing data. New home sales rose 3.3%m/m in April (2.1% expected). House prices were also shown rising 1.8%m/m.
The USD index rose from around 81.70 to 82.10 after the data.
Conversely, the EUR/USD fell from above 1.2680 to trade around 1.2560 currently. This is the common currencies lowest level since July 2010.
Overnight, the Bank of England minutes showed the recent decision to pause stimulus was “finely balanced” for some. This hints of more QE to come. UK bond yields fell to record lows. In addition, UK data releases were generally on the weak side. Retail sales fell -2.3%y/y in April (-0.8% expected). The GBP/USD fell from around 1.5760 to 1.5690 currently, its lowest level since mid-March.
Yesterday, the Bank of Japan left rates unchanged as expected, and refrained from announcing further monetary stimulus. Still, there is some expectation the BoJ may announce such measures in July, in order to help achieve its 1% inflation goal.
For now, the JPY strengthened following the meeting, further boosted by its ‘safe haven’ appeal overnight. The USD/JPY declined from 80 to 79.50.
The AUD continued its fall from grace. Key support levels failed to hold yesterday and the AUD/USD slid to trade around 0.9730 currently, its lowset level since November.
The market will continue to keep its ear open for murmurs from the European summit today.
Tonight, German and Eurozone PMI data will be released. The extent to which German readings are being dragged down by the general European malaise will be the key to watch.
The UK issues Q1 GDP data. The US releases durable goods orders. US Federal Reserve member Dudley will also speak tonight.
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