PBOC reported saying economy not shown signs of rebounding despite assurances China’s 7.5% growth ‘floor’ maintained

By Kymberly Martin

NZD

The NZD finished a week of consolidating recent gains, at around 0.8290.

On Friday night the NZD/USD found resistance at 0.8340, though generally solid global risk appetite enabled the currency to hold onto recent gains.

However, the NZD/USD uptrend appears to have run out of steam, and resistance to further gains will likely be felt this week. While global risk appetite remains buoyant (76% on our risk appetite indicator), this looks somewhat vulnerable in the week ahead (see Majors).

The key domestic data this week will be Thursday’s NBNZ business confidence survey. We wouldn’t be surprised to see this slip a little from the average readings it did well to hold in August.

While the NZD/USD shows some vulnerability to the downside this week, solid support is seen around the 0.8200 level. This is still our year-end forecast for the currency.

We also forecast NZD/AUD at 0.8200 by year-end. The cross consolidated recent gains at the end of last week. It finished the week around 0.7930.

There is a lack of critical data releases on either side of the Tasman this week. However, the AUD will suffer on a relative basis from any resurfacing of China growth fears.

Over the weekend, an advisor to the PBOC was reported as saying China’s economy has not shown any signs of rebounding in Q3, despite assurances China’s 7.5% growth ‘floor’ is maintained.

For today there are no NZ or AU data releases.

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Majors

Through a fair amount of chopping around on Friday, majors closed little changed. This ended a week of relative consolidation for most currencies.

Our risk appetite indicator (scale 0-100%) has been holding up at a fairly heady 76%, in the post QEIII and ECB announcement glow. On Friday, European equities (Euro Stoxx 50) managed a further 0.90% gain. However, the S&P500 dribbled lower into the close, to be flat on the day.

Risk appetite will likely be tested this week with Eurozone dynamics back in the headlines. Aside from Spain, Greece is likely to see its fair share of attention as the ‘troika’ is expected to return to Athens after about a week. The IMF says talks since early September have been ‘productive’ and ‘good progress’ has been made.

Any souring in Eurozone sentiment will likely come at the expense of the EUR with the USD benefiting from some ‘safe haven’ flows. For now, the EUR sits just under 1.3000, down from last week’s highs above 1.3170.

The GBP/USD consolidated its recent gains last week, sitting around 1.6230 at present. Having partly ridden higher on the EUR’s coat-tails in recent weeks, there is not too much to directly impact the GBP this week.

Thursday’s UK GDP release is a final reading, expected to confirm the UK’s GDP contracted 0.5% in Q2.

Global risk appetite will be a key driver of the AUD this week, with any waning likely to negatively impact on the currency. AU data releases are of 2nd teir nature. However, Friday’s private sector credit data may cause the RBA to question just how much impact rate cuts are having, if business credit growth remains weak in August.

Friday’s Chinese HSBC Manufacturing PMI also has the potential to impact on the AUD sentiment if it slips further into contraction (currently 47.6).

Elsewhere, there will be the usual array of global data this week. However, European headlines may prove to be the more significant driver of currencies and risk sentiment.

Tonight, the German IFO business survey will be released, as an important indicator of the impact of peripheral European concerns on the ‘core’.

Event Calendar:

24 September: BoJ minutes; German IFO survey; UK Nationwide house prices 25 September: RBA board, Financial Stability Review; US consumer confidence; US Richmond Fed index; US house price index: US Fed’s Plosser speaks 26 September: NZ Trade balance; US MBA mortgage applications; US home sales 27 September: NBNZ business confidence; UK GDP; EC confidence indicators; US GDP; US initial jobless claims 28 September: NZ Building permits; NZ credit aggregates; AU private sector credit; CH, HSBC manufacturing PMI, US Chicago PMI; US University of Michigan confidence.

All its research is available here.