Article notes upward pressure on RBNZ to lft interest rates; NZ$/A$ grinds higher to 5-year highs

by Doug Steel

NZ Dollar

At around 0.8190, the NZD/USD is not far from where it sat this time yesterday. But that masks a full 1 cent range over the past 24 hours.

The kiwi caught a bid yesterday jumping on the coat tails of a stronger AUD following a speech by RBA Deputy Governor Lowe. The speech was actually on productivity and infrastructure. But with his response to questions suggesting that the threshold for FX intervention remains fairly high while not ruling it in or out was enough for the market to push the AUD/USD from around 0.9160 pre-speech to above 0.9200.

This put some air under the kiwi’s wings yesterday. Further oomph was given to the NZD following a Wall Street Journal article noting the upward pressure on the RBNZ to lift interest rates. All this was enough to push the NZD/USD over 0.8260 late yesterday.

Overnight was a different story, with the commodity currencies falling against the USD. The AUD fell back below 0.9100. There was no one particular catalyst with a performance mish-mash across equities and commodities amid hints of ‘risk-off’ tendencies sneaking into markets.

The NZD/USD tested the strong support levels around 0.8160 to 0.8170. We expect these to continue to hold today.

Through the global chop, the NZD/AUD continues to grind higher as positive momentum remains. The cross pushed onto a fresh 5-year high overnight to within a whisker of 0.9000.

For today, watch out for NZ’s merchandise trade data at 10.45am. The market is looking for a $350m monthly deficit. We see a smaller deficit of around $90m, with an 18% lift in exports as the rural production bounce back from drought meets sky high commodity prices. Meanwhile, we’re looking for October’s imports to be about flat on a year ago.

A trade result on our expectations could see the NZD/AUD push through the 0.9000 level, especially if Australia’s Q3 Building Work Done disappoints market expectations which sit at +0.5% q/q. Our NAB colleagues see a 1.0% fall.

Also keep an eye out for the latest week’s NZ mortgage approvals data at 3pm. Many are watching these as a timely barometer of the housing market post-LVR restrictions. We are not expecting anything different to recent weeks, so lower than a year ago but nothing to suggest things are substantially different to RBNZ expectations.

------------------------------------------------------------------------------------------------------------------

To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.

------------------------------------------------------------------------------------------------------------------

Majors

Stocks have been mixed over the past 24 hours. Following a mish-mash of performance across Asia yesterday, the EuroStoxx 50 index fell around 0.3% overnight, while US stock indices eked out small gains pushing onto new highs.

In currency markets, the USD has essentially given back its gains from the previous day. The DXY index sits around 80.7, 0.2% down on this time yesterday. US data were mixed. On the positive side were building permits for both September and October (released at the same time as the backlog from the government shutdown is cleared). It helps offset some of the sour taste from yesterday’s pending home sales. The Case-Shiller Home Price Index also beat expectations, with its 13.3% lift y/y (13.0% expected).

But support for the greenback was undermined by a drop in US consumer confidence to 70.4 in November, when a gain to 72.6 was expected from October’s 71.2. The drop came despite a strengthening labour market, record high equity prices, rising house prices, lower petrol prices and the re-opening of government. The mid-year push higher into the 80’s has now been fully unwound with confidence at a seven month low.

The data ups and downs saw the DXY index push up towards 80.9 at one point overnight and almost as low as 80.6. The EUR/USD is currently hovering around 1.3570.

There was little of note from the BoE testimony to the UK Treasury Select Committee. The GBP/USD sits at a similar level to this time yesterday at around 1.6190.

The USD/JPY sits around 101.30 this morning, back from almost 102.00 yesterday. While momentum remains positive for the USD/JPY, as we suggested yesterday overweight positioning makes short term gains a struggle.

Combined with a lower USD/JPY, the 0.15% fall in USD/CHF gave a whiff of ‘risk-off’ tendencies sneaking into currency markets. In line with that the so-called commodity currencies are generally weaker with the AUD/USD (around 0.9120) and NZD/USD (circa 0.8190) lower and USD/CAD higher (1.0550).

But rather than a wholesale ‘risk-off’ move, the bigger picture still feels like a market in a holding pattern as it awaits US payrolls next Friday. This will give guidance on the next chapter in the Fed’s tapering considerations.

The global data calendar over the coming 24 hours does not look capable of shunting the market out of its slumber with only the November Chicago PMI and October Durable Orders slated for the US.

All its research is available here.