Reports are emerging that a number of ECB members were against the rate cut decision last week

by Kymberly Martin

NZ Dollar

The NZD/USD has climbed up the hill and down again over the past 24-hours. Having reached toward 0.8290 last evening it now sits below the start of week, at 0.8230.

There was little on either the domestic or global stages to provide direction for the NZD over the past 24-hours. In thin, US-holiday driven markets the NZD/USD drifted lower overnight. The NZD/USD now trades just above a band of support that sits between 0.8190 and 0.8230.

If support sustains as we expect, it would confirm the NZD/USD remains within a broad 0.8200-0.8400 range, for now. A break below 0.8190 would open up the potential for a shift down toward 0.8000.

The most notable move on the crosses overnight was a shift down in the NZD/EUR. Having run up against resistance above 0.6200 last week, the cross weakened last night in the face of a stronger EUR. The NZD/EUR sits at 0.6140 this morning.

Today, the focus will be on the REINZ house price report for October. This usually 2nd tier data has taken on greater importance of late.

The market is scrambling to find hard data that shows the impact of recently implemented Loan to Value Ratio (LVR) restrictions on banks. However, there is the possibility the October data may be propped up by buyers looking to utilise their pre-LVR mortgage pre-approvals before they expire.

A very soft outcome could see the NZD slump as the market assumes evidence that LVRs are ‘biting’ would mean fewer OCR hikes will be required further down the track. Given the momentum elsewhere in the economy we would be cautious of this interpretation.

Otherwise it’s fairly quiet on the local data front (aside from the ANZ truckometer). Across the Tasman, today’s focus will be the NAB business survey.

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Majors

Currency markets were fairly subdued while the US celebrated Veteran’s data. The EUR strengthened relative to a slightly weaker USD index overnight.

Overnight, in relatively calm, holiday-impacted markets, our risk appetite index (scale 0-100%) continued to hover around 70%. Equity markets provided modest positive returns. The Euro Stoxx 50 closed up 0.6% while the S&P500 is just above flat.

The global CRB commodities index continues to consolidate after its sharp October fall. Still, at 275, the index remains close to its lowest levels since mid-last year. A broad downtrend form early 2011 remains intact. The continued uptrend in NZ commodity prices is all the more striking in this context.

The USD index drifted lower, from 81.30 to 81.00, in the face of stronger European currencies. Overnight, news sources reported that a number of ECB members dissented on the rate cut decision last week. Realisation that the decision to loosen monetary policy was not unanimous within the ECB likely helped set the EUR on an upward path overnight. From 1.3360, the EUR/USD traded up to 1.3410 this morning.

The GBP/USD wakened a little overnight, ahead of the release of a slew of UK pricing data tonight and the Bank of England’s Inflation Report on Wednesday. The GBP/USD slumped from 1.6020 last night, to sit at 1.5980 this morning.

The AUD/USD slipped a little lower to sit at 0.9350 this morning. The currency is now more than 4% down from its late October highs, with the next near-term level of support around 0.9280. Today, the AU focus will be the release of the NAB business survey for October. This will be under scrutiny after the September report showed confidence improving further while conditions still languished.

Aside from UK price data (house prices, PPI, CPI, RPI), tonight will bring a smattering of 2nd tier US data, including 3Q mortgage foreclosures. The Fed’s Kocherlakota and Lockhart are also scheduled to speak. However, the market will likely be looking ahead with greater interest to when elected Fed chairperson, Yellen, speaks at her nomination hearing on Friday.

All its research is available here.