By Kymberly Martin
NZD
The NZD was the weakest performer amongst its peers over the past 24-hours, currently sitting at 0.8210. The NZD has started the week with a softer tone, as the market appears to be reassessing its recent love affair with ‘risk’.
Yesterday, our flows showed leveraged accounts trimming long positions in the ‘risk sensitive’ NZD. The NZD/USD found support around the key 0.8200 level overnight, though this will likely be re-tested today.
The NZD/AUD also got caught up in the under-performance. The cross slipped from 0.7930 to sit around 0.7880 at present. There is a lack of local data releases to impact on the cross today, so general risk appetite will likely remain the key driver.
The NZD also lost ground relative to both its key European peers. The NZD/GBP declined consistently to sit around 0.5060 currently. Support is now eyed at the psychologically important 0.5000 level, a level that held earlier this month.
Generally, this week is light on NZ data releases so the NZD will remain at the whim of global risk appetite, depicted in equity market performance. After opening down 0.50% the US S&P500 has managed to claw its way back to almost flat at the close, underpinning the tone for the Asian day ahead.
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Majors
The USD was broadly stronger overnight, as the market takes a breather from its recent surge in risk appetite.
The recent positive momentum appears to have run out of steam. However there is a lack of negative catalysts to shock markets into action. The Euro Stoxx 50 slipped 0.70% overnight, but our risk appetite index (scale 0-100%) managed to cling on at a hearty 76%.
The EUR/USD fell after the release of weaker-than-expected German IFO data. The survey of firms showed their current assessment of the economy slipped to 110 (111 previously).
The forward-looking expectations component slipped a little further from 94.2 to 93.2 (95 expected). The EUR/USD slipped from above 1.2960 to trade around 1.2930 currently.
The USD index benefited from this move and also relative to the more ‘risk sensitive’ AUD and NZD. The AUD joined the NZD in slowly slipping over the past 24-hours. The AUD/USD bounced off intra-night lows below 1.0390 before returning to trade around 1.0420.
Our NAB colleagues now forecast a further 50bps of RBA rate cuts in coming months. However, this is still not as aggressive as the market’s expectation for more than 80bps of cuts. If 50bps are delivered, it will therefore not necessarily undermine the AUD.
Today, the RBA Board will issue its Financial Stability Review. While unlikely to impact directly on the currency it will provide colour on the RBA’s broader assessment of financial conditions. Tonight, in the US, consumer confidence, Richmond Fed and house price data will be released.
The Fed’s Plosser will speak on the economic outlook tonight. Given that he is considered a hawk, some of his comments may catch attention. This will be the case if his comments rub up against the current Fed policy of leaving conditions extremely loose until clear labour market improvement takes hold. However, it is worth bearing in mind, Plosser is not a voting member of the Federal Reserve this year or next.
Event Calendar:
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.
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