by Mike Jones
NZD
Despite running into the odd pothole, the NZD has spent most of the past 24 hours trending higher. The NZD/USD currently trades around 0.7930, up from 0.7870 this time yesterday.
Yesterday’s appointment of Graeme Wheeler as the new RBNZ governor failed to spur so much as a ripple from the NZD. The simple fact is the market will have to wait until September 25 to get a feel for the new governor.
In any case, trends in global risk appetite remain the dominant driver of the NZD at present. Overnight, a modest recovery in risk sentiment allowed ‘growth-sensitive’ currencies to outperform. The better mood seemed to be tied to a late rally in US stock markets (the S&P500 is currently up around 0.7%).
In contrast, the news out of Europe was far from inspiring. Spanish and Italian bond yields continued to press worryingly higher (see Majors). And European policy makers kept on talking down the chances of Thursday and Friday’s EU Summit achieving much in the way of policy action.
Against this backdrop, the EUR continued to struggle. Heavy selling of EUR crosses propelled the NZD/EUR from below 0.6300 to 4-month highs around 0.6340, helping underpin the NZD/USD. NZD/EUR is now closing in on February’s all-time high around 0.6400.
We expect a push through here in coming sessions, reflecting European political uncertainty and the far brighter NZ economic outlook (forecast 2012 calendar year growth of 3.0%, compared to the -0.4% expected for the Eurozone). Our forecasts have NZD/EUR hanging up in a 0.6250-0.6400 range for the rest of 2012.
For today, the NZD/USD should continue to consolidate inside the familiar 0.7845-0.7945 range. Indeed, this range may well cap the currency ahead of Thursday night’s EU Summit.
On the data calendar, today brings NZ merchandise trade figures. We’re anticipating a small fall in the monthly trade surplus, to $210m.
------------------------------------------------------------------------------------------------------------------------------------------
To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.
------------------------------------------------------------------------------------------------------------------------------------------
Majors
Currencies were whipped around in brutal fashion overnight, but are little changed on net. Looking through all the volatility, the EUR again emerges as the biggest loser, with the ‘risk-sensitive’ currencies ending the night modestly higher.
Investors continue to jostle for position ahead of Thursday’s all important EU Summit. Overnight, European policy makers again tried to dampen expectations for any decisive action. The EU’s Van Rompey said a ‘roadmap to integration’ wasn’t likely until December. And Germany’s Merkel even went as far as to say ‘Europe will not have shared total liability for debt as long as she lives’.
The headlines took a toll on European equity markets (which finished flat to slightly down) and the EUR. But it was poorly received Spanish and Italian bond auctions that really did the damage. Signs of lower demand at the auctions pushed Spanish 10-year yields up from 6.7% up to 6.9%. Italian equivalents rose from 6% to 6.2%.
After starting the night above 1.2500, the EUR/USD spent most of the night beating a choppy path lower towards 1.2450. It was a different story in the ‘risk-sensitive’ AUD, CAD and NZD. Not only did they benefit from EUR cross selling, but a late rally in US stocks acted to shore up investors’ risk appetite a little. The S&P500 is currently up 0.7%
As well as the usual flurry of European headlines, a decidedly mixed set of US data also contributed to last night’s volatility. Investors took heart from a 0.7%m/m increase in Case-Shiller US home prices, but the weaker Richmond Fed index and consumer confidence updates soon eroding any nascent optimism.
Looking ahead, we suspect the major currencies will continue to trade choppily around recent ranges as we approach Thursday’s Summit. For EUR/USD, we see 1.2440-1.2525 holding in the short-term. Keep an eye on tonight’s US home sales and durable goods orders data. They should be solid, but any signs of weakness will add to chances of QEIII from the Fed and undermine the USD.
Other news: Egan Jones downgrades Germany from AA- to A+. US consumer confidence falls from 64.9 to 62.0 – the lowest since January and below expectations of 63.0. Richmond Fed index -3 vs. +2 expected. German consumer confidence rises from 5.7 to 5.8 (small fall to 5.6 expected). UK public sector borrowing proved much higher than expected in May. April’s £17.6b surplus reversed into a £17.9b deficit, well above expectations for a £14.8b deficit.
Event Calendar:
27 June: NZ trade balance; GE CPI; US durable goods orders; US pending home sales; 28 June: NZ business confidence; JP retail trade; AU home sales; GE unemployment; UK & US final Q1 GDP; UK Q1 current account; US jobless claims; IT bond auction; EU leaders Summit kicks off; Fed’s Pianalto speaks; 29 June: NZ building permits; JN jobless rate, CPI, industrial production; EU CPI; US personal spending; US Fed’s Bullard speaking; US Chicago PMI; 1 July: CH manufacturing PMI; 5 July: ECB.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.