by Kymberly Martin
NZ Dollar
After touching below 0.8160 overnight the NZD/USD has returned to trade above 0.8210 this morning.
There was little on the domestic agenda to drive the currency yesterday, which shuffled sideways for most of the day. Overnight it was jostled a bit by moves in the USD but has returned to trade just below 0.8220 currently.
The NZD has strengthened relative to the GBP but weakened relative to the EUR overnight. While the NZD/GBP attempted to probe below 0.5000 again, this proved unsuccessful and this cross has returned to trade at 0.5030 this morning.
Meanwhile EUR strength resulted in a lower NZD/EUR. Early this morning the NZD/EUR fell sharply from above 0.6040 before finding support at 0.5980. It has grappled back to trade above 0.6010 at present.
The uptrend in the NZD/AUD lost momentum overnight. It found resistance at 0.9090 before returning to trade at 0.9060. We believe the current level of the cross is completely justified by the relative trans-Tasman fundamentals (commodity prices, interest rates, growth outlook, business confidence).
However, much of the diverging fortunes of the two countries is now well recognised and ‘in the price’. Further upside will be more difficult to achieve, especially as the NZ rates market is on the verge of getting ahead of itself in its OCR hike expectations.
Today, the NZ crown accounts will be delivered along with wholesale trade data. But attention will mostly be directed towards tonight’s US payrolls release. For today, we see support NZD/USD remaining at 0.8160. Resistance is eyed at 0.8230, ahead of 0.8260.
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Majors
The USD index ended the night lower after a spike higher early this morning. The GBP has underperformed over the past 24-hours while the JPY and CHF have outperformed.
Equity markets continued to subside overnight, as our risk appetite index (scale 0-100%) clings on at its recent more modest level (61.6%). The market appears to be pre-positioning for the prospect of an upside surprise for US payrolls tonight, which could point to an imminent start to the US Fed’s ‘tapering’ process. The Euro Stoxx 50 closed down 1.3% and the S&P500 is currently down 0.3%.
The US also delivered its second reading of Q3 GDP. This came in above expectation (3.6% vs. 3.1%) which also hints at an earlier start to QE tapering from the Fed.
However, stronger inventory building was a key reason for the upward revision which may provide some drag on Q4 GDP. The USD index briefly spiked above 80.80 after the data but returned to sit at 80.30 this morning.
Both the BoE and ECB left rates unchanged as expected overnight. The ECB suggested it had only briefly discussed the option of a rate cut. The EUR was bolstered, also assisted by USD weakness early this morning. It currently sits around 1.3660. This is its highest level since the end of October.
The GBP was the weakest performing currency over the past 24-hours. Once again finding resistance at the 1.6400 level last evening the GBP/USD has returned to sit at 1.6330 this morning.
The AUD was fighting to find its feet for much of the night. Benefitting from USD weakness early this morning it sits at 0.9060 this morning. There is little on the local agenda today, so the market will likely remain fixated on the release of US payrolls data due tonight.
The market appears to be factoring in the potential for an upside surprise on the data. An outcome ‘only’ in line with expectation (185k) could therefore see US yields and the USD slip.
Elsewhere, US consumer credit data and the University of Michigan consumer confidence survey will be released.
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