by Kymberly Martin
NZ Dollar
Reversing its trend from last week, the NZD was the strongest performing currency over the past 24 hours. It sits around 0.8180 this morning.
Yesterday’s Overseas Trade Indexes showed a much stronger than expected merchandise terms of trade figure.It lifted all of 7.5% in Q3 (2.9% consensus). There was obvious strength in dairy prices but price increases are now coming through in many other export categories.
But the “real” surprise in the data was in merchandise export volumes. They fell a seasonally adjusted 2.1% in Q3, which technically suggests a slight dampening of Q3 GDP calculations. All up though, it was nothing to dampen a rebound in the NZD from last week’s lows. Opening the week around 0.8140 the NZD/USD now sits around 0.8180, having touched above 0.8220 overnight.
The NZD also rebounded on the key crosses. The NZD/GBP has nudged back above 0.5000 after last week’s brief dip below this psychologically important level. The NZD/AUD pushed up to new cycle high above 0.9000 overnight, returning to trade around 0.8990 currently. The fate of this cross will likely be determined by events across the Tasman today.
The release of AU retail sales data will be augmented by the RBA’s rate announcement. The RBA is almost universally expected to remain ‘on hold’, though the market still prices some (35%) chance of a further rate cut by mid next year.
Today, the ANZ commodity price indices for November will be released. We anticipate mixed results by commodity group but a small net advance, overall.
Early tomorrow morning the latest global dairy auction will also take place which we’re neutral on regards potential direction.
For now, NZD/USD support is seen at 0.8120 and resistance is eyed at 0.8220.
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Majors
Overnight, the USD was stronger while the JPY was the key underperformer.
Markets generally remain a little in limbo, which will likely persist as we head into Friday’s all-important US payrolls release. Equity markets provided modest negative returns in Asia and Europe, but the S&P500 is currently clinging onto a small gain (0.2%). Our risk appetite index (scale 0-100%) remains at a still fairly healthy level of 64%, though down from recent highs around 70%.
The key data release overnight was the US Manufacturing ISM. It pushed up to a two-and-a-half year high of 57.3 (55.1 expected). This suggests that activity is being boosted by both stronger domestic and offshore demand. The USD started the evening on the ascendancy and held onto its gains after the ISM release. The USD index sits just below 80.90 this morning, having started the evening around 80.60.
Despite positive revisions to Eurozone November PMI data the EUR/USD subsided overnight. From above 1.3600 it now sits just above 1.3540. Similarly, a very strong UK Manufacturing PMI (58.4 vs. 56.1) failed to translate into sustainable gains for the GBP. The GBP/USD slipped from highs above 1.6420 yesterday evening to sit around 1.6360 this morning. Still, the recent uptrend in the GBP/USD appears intact for now, with the next level in its sights being last September highs around 1.6600.
The JPY continued its steady weakening trend. Overnight, headlines suggested the Bank of Japan was working on plans for further economic stimulus. Options include further JGB buying or major purchases of equity market linked funds. The USD/JPY climbed above 103.00 early this morning.
The AUD will be in the spotlight today as the RBA meets to set its target rate. Heading into the meeting the AUD/USD is sitting a little lower, around 0.9100. The Bank is almost universally expected to remain on hold at 2.50%, although the market still prices around a 35% chance of a further rate cut by mid next year.
AU net exports and retail sales data will also be released. October retail sales are expected to show growth of 0.4%, adding to recent gains, and providing further comfort to the RBA that low rates are supporting confidence and activity.
It is fairly low-key on the trans-Atlantic data front tonight. The UK construction PMI and Eurozone PPI will be released. The ECB’s Nowotny is also scheduled to speak in Brussels.
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