By Kymberly Martin
NZD
The NZD/USD was the weakest performer amongst its peers over the past 24-hours. It trades around 0.8000 currently.
Yesterday’s Performance of Services Index and Westpac Consumer Confidence Index provided additional evidence that the NZ economy remains broadly on a very solid footing.
This should underpin the NZD/USD over the medium term, in our view. The NZD/USD crept higher to touch 0.8100 last evening before slipping below 0.8000 this morning.
The NZD also gave up more of its recent bounce against its European peers. The NZD/EUR slipped from overnight highs above 0.6070 to sit around 0.5980 currently.
The NZD/AUD eased lower over the past 24-hours to sit around 0.8370 currently. Broadly the cross continues to consolidate in a 0.8280-0.8460 range.
Today, there are no NZ domestic data releases, but across the Tasman the release of RBA Minutes will be closely watched.
However, they may not provide much insight, as future rate moves are likely highly dependent on data releases in coming weeks/months.
The risks are likely tilted toward the market reducing its RBA rate cut expectations (currently 40bps for the year ahead). This could see the NZD/AUD ease off a little more.
In the early hours of tomorrow morning the latest global dairy auction will take place. The outcome is biased toward another gentle correction in prices. However, we still favour an eventual settling at a relatively strong level.
We see the relative strength in NZ commodity prices as another plank of support under the NZD over the medium-term.
For the day, NZD/USD support is eyed at 0.7940. Resistance should be encountered approaching 0.8050.
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Majors
The USD was broadly stronger overnight, but has plunged lower in the past hour. The NZD and JPY were amongst the weakest performers overnight.
The USD was on the ascendancy at the start of the week, as the JPY weakened against the backdrop of a 2.7% rebound in the Japanese Nikkei index.
The positive USD tone was then entrenched by US data delivery, and expectations that the Fed may announce a timetable for ‘tapering’ at its meeting this week.
The US NAHB housing index showed continued recovery in this segment of the economy. At 52 (45 expected), it was above 50 for the first time since April 2006.
Overall the USD index moved off yesterday’s lows below 80.60 to trade around 80.85 this morning. Within the past hour it has plummeted back to 80.60.
This has occurred as the writer of the article suggesting the Fed may be about to announce its tapering schedule countered that it was purely an opinion without inside information.
The market’s reaction shows just how sensitive it is heading into Thursday morning’s (NZT) FOMC announcement. The Committee’s deliberations kick off tonight.
By contrast, the JPY opened the week on the back foot. In keeping with its strong negative correlation with the Japanese equity market, it weakened as the Nikkei launched a solid bounce.
The USD/JPY moved up from 94.20 to above 95.00 this morning. As a result of the USD move in the past hour it has slipped back to 94.50.
Against the backdrop of a stronger USD, the EUR and GBP failed to push on to new highs. There is a swathe of UK data to be released overnight. (ONS house prices, CPI, retail price index, PPI). CPI is likely to be seen in the vicinity of 2.7%y/y. This is down from last year’s highs above 5.0%, but not yet low enough to allow complacency on the part of the Bank of England.
The GBP/USD found resistance at 1.5750 early this morning, before slipping to trade around 1.5690 currently.
The AUD/USD climbed as high as 0.9640 yesterday evening before slipping lower early this morning to sit around 0.9560 at present.
May Chinese property price data and the RBA June Minutes will be delivered today. Both have the potential to influence sentiment toward the AUD.
Currently, the market prices a further 40bps of rate cuts from the RBA in the year ahead. However, the Minutes may prove unrevealing, as the RBA’s next decisions likely remain very dependent on data delivery in coming weeks/months.
Our NAB colleagues, do however, see the prospect of a further 25bps cut before year end.
Tonight, the German ZEW survey of the economy will be released along with US CPI and housing starts data. US housing data should continue the message of positive momentum in this segment of the economy.
CPI data should confirm that at least for now, high inflation is not an issue the US Fed needs to grapple with as it remains focused on labour market improvement. Core inflation remains on a downward trend and is expected in the vicinity of 1.7%y/y, in May.
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