By Kymberly Martin
NZD
The NZD joined the AUD as worst performers over the past 24-hours. The NZD/USD sits at 0.7940 currently.
Although the NZD was well-supported yesterday afternoon, it came under pressure overnight as broad risk appetite faded. Weak Eurozone and US data combined for a gloomy backdrop to markets.
The NZD/USD currently sits fairly vulnerably at crucial support levels. A convincing break would open the way to a further down-leg.
There is little on the domestic agenda to drive the currency for the rest of the week, so offshore events will remain the focus.
Tonight’s attention will turn to European central banks. However, Friday night’s US payrolls data remains the mostly likely determinant of the NZD’s fate this week.
After soft US employment indicators last night, expectations for tomorrow’s payroll report are now likely quite low. It would therefore take a significant disappointment to the current consensus forecast (165K) to further dampen risk appetite.
Yesterday’s slightly disappointing AU Q1 GDP report saw the NZD/AUD on the ascendancy, until it touched above 0.8370 early this morning. It has subsequently given back some of its gains to sit around 0.8330 currently.
The NZD underperformed relative to its European peers overnight. The NZD/EUR has broken lower to 0.6070 this morning, its lowest level since June last year.
Similarly the NZD plunged relative to a strong GBP overnight (see Majors). At 0.5150, this cross now sits at its lowest level since early January. The key focus for European crosses tonight will be the Bank of England and ECB rate announcements.
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Majors
In generally risk-averse markets overnight, the JPY, GBP and CHF outperformed while the AUD and NZD were the worst performers.
General sentiment and equity market performance took a pummelling overnight. Our risk appetite index (scale 0-100%) fell further, to 61%.
A further 3.8% decline in the Japanese Nikkei index was followed by a 1.7% fall in the Euro Stoxx 50. The S&P500 is currently down 1.3%.
Data was almost uniformly disappointing on both sides of the Atlantic. Eurozone markets were hit by a trifecta of disappointing data: The final May reading of the Services PMI index declined to 47.2 (47.5 expected); Eurozone Q1 GDP was shown falling 1.1%y/y (-1.0% expected); Eurozone April Retail Sales fell 1.1% (-0.8% expected).
Combined, they challenge the ECB’s projections of the region embarking on a decent recovery later this year.
While German bond yields fell, the EUR/USD held up fairly well overall, finding support at 1.3060, before returning to trade at 1.3080 this morning.
Stabilisation of the EUR/USD was helped by negative data then delivered on the other side of the Atlantic.
US MBA Mortgage Application were weak at -11.5%, followed by a disappointing ADP employment report (135K vs. 165K expected). The ADP survey has never been the most reliable indicator of official non-farm payrolls, due tomorrow.
However weakness in the employment index (a fall to 50.1 from 52.0) of last night’s ISM non-manufacturing index was the final nail in the coffin for market expectations. The USD index sits a little lower at 82.60 this morning.
The key beneficiaries of the negative market sentiment were the ‘safe haven’ CHF, and JPY. It is interesting the JPY appears to still act in this capacity during times of market stress. It also worth noting the continued negative correlation between the JPY and the Japanese equity market. The USD/JPY sits at 99.20 currently.
The AUD/USD was knocked lower yesterday afternoon after Q1 GDP came in slightly below consensus expectations (0.6%q/q vs. 0.7%). However it soon regained its footing.
It wasn’t until general risk appetite faded overnight that the AUD/USD broke through key support around the 0.9550 level. It sits around 0.9530 currently.
The GBP was relatively buoyant overnight. Bucking the trend of disappointing data, the UK May Services PMI came in at 54.9 (53.1 expected). The GBP/USD has risen from around 1.5300 to sit above 1.5400 currently, its highest level since early May.
Tonight, the focus will be on the Bank of England and ECB which are both scheduled to announce rates. The ECB is widely expected to keep rates unchanged at 0.50%, even as growth and inflation forecasts are likely to be revised down.
With rates now approaching the zero lower bound, the ECB will concentrate on alternative measures to help stimulate the Eurozone economy. The Bank of England, in its final meeting under Governor King, is also expected to leave rates unchanged at 0.50%. No tinkering with its June asset purchase targets is expected (currently £375b).
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