By Kymberly Martin
NZD
The NZD/USD was the strongest performing currency over the past 24-hours, boosted by buoyant global risk appetite overnight. It currently trades around 0.8180.
NZ data releases (card spending and QV house prices) were broadly supportive yesterday, though eliciting little response from the currency.
The action came later in the evening as global risk sensitive assets found favour (see Majors). This saw the NZD/USD propelled to 0.8180. Early August highs on the NZD/USD around 0.8220 are now within sight. If risk appetite is further boosted tonight by a positive ruling from the German Constitutional Court we would expect this level to be tested.
The NZD also outperformed on the crosses. The NZD/AUD has risen to sit just below 0.7850. In the absence of any NZ data releases today, AU releases will be the key influence on the cross. AU Westpac Consumer Confidence and dwelling starts data will be released this afternoon (NZT).
Consumer confidence is likely to be subdued again after falling 2.5% to 96.6 in August (the long run average is 101). The next level of resistance for the NZD/AUD is at the late June highs of 0.7890.
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Majors
It was a case of broad USD weakness overnight. The NZD and AUD were the strongest performers over the past 24-hours.
Risk appetite remained robust overnight with our risk appetite index (scale 0-100%) remaining at a healthy 71%. The Euro Stoxx 50 closed up 1.1% and the S&P500 is currently up 0.3% The EUR/USD benefited from expectations the German Constitutional Court vote should pass without a hitch. Headlines from the German foreign minister suggested a pro-European decision from the Constitutional Court was imminent.
The USD was also under downward pressure as the market contemplates further monetary easing at Thursday night’s FOMC meeting. In addition, rating agency Moody’s stated the US stands to lose its Aaa rating if definitive steps are not taken to reduce its debt/GDP ratio (However, a one notch downgrade would simply align its rating with S&P’s).
The USD index declined from around 0.8040 to sit just above 79.80 at present. The EUR/USD, by contrast has been boosted from 1.2780 to around 1.2860.
The GBP/USD was supported by the general move against the USD, and a positive surprise on July UK trade balance data. The total trade deficit narrowed from a revised £4.3 billion to £1.5 billion (£3.2 billion expected).
The better-than-expected outcome suggests a bounce in Q3 that will help support growth. Still, we doubt this will prevent another round of QE as the outlook for 2013 remains uncertain. For now, the welcome surprise helped to boost the GBP/USD from 1.6000 to 1.6070, its highest level since mid-May.
The AUD strengthened along with the NZD on the back of broadly robust risk appetite. In addition, the AUD is likely feeling the tail-winds of Chinese Premier Wen’s comments that they have ample monetary or fiscal ammunition to secure stable growth. This includes dipping into China’s ¥100b fiscal stabilisation fund if necessary. Last night the AUD/USD rose from just above 1.0320 to sit at 1.0440.
Tonight, all eyes will be on the German Court vote. Though largely expected, a positive vote would likely continue to boost the EUR in the near-term. Eurozone industrial production data will also be released along with UK employment data.
Event Calendar:
12 September: AU dwelling starts; UK employment; EU IP; EU elections in Netherlands, EU German constitutional court rules on legality of ESM; 13 September: NZ RBNZ policy statement; NZ PMI; AU RBA Bulletin; EU SNB meetgs; US PPIs; US jobless claims; US FOMC meet; G20 begins; 14 September: Eurogroup meeting; US CPI; US retail sales; US Michigan consumer confidence.
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