by Kymberly Martin
NZ Dollar
The NZD was the strongest performer amongst its peers on Friday. The NZD/USD ended the week around 0.8280.
The NZD/USD drifted lower into the much anticipated US payrolls release on Friday night. Payrolls beat the official consensus (203k vs. 185k) (see Majors and Fixed Interest). On the release, the NZD gapped lower along with most of its peers as the USD index showed a knee-jerk surge higher. This proved short-lived. Having fallen below 0.8150, the NZD/USD soon bounced back, gaining momentum in the early hours of Saturday morning.
The NZD appeared to benefit from the improvement in general risk appetite. Our risk appetite index (scale 0-100%) rebounded from 61 to 65% as equities on both sides of the Atlantic provided solid returns.
The NZD was stronger on all the crosses, most notably relative to the JPY. After the payrolls release, this cross lurched higher. From around 83.50 it ended the week above 85.20. This cross is now at its highest level since a spike higher to 86.40 in mid-April.
The NZD is also stronger relative to its European peers. The NZD/GBP has extended its recent bounce from below 0.5000. It ended last week above 0.5060.
The NZD/AUD also pushed up to new cyclical highs, ending the week within a whisker of 0.9100. It will be a busy week for the cross with important data releases on both sides of the Tasman.
Thursday’s RBNZ meeting may prove the market is getting a little ahead of itself in pricing almost a 40% chance of an OCR hike by the January meeting. Near-term this could cause the market to question the current heights of the NZD/AUD. However, there will be plenty to also influence sentiment toward the AUD this week. Consumer and business confidence surveys are due along with the labour market report on Thursday.
Today, NZ manufacturing activity data will be released along with QV house prices. Also look out for Fonterra’s revised payout forecast which is due sometime this week. This is likely to be to the upside of the already lofty indication of $8.30.
Support for the NZD/USD is now seen at 0.8230. Resistance is eyed in the 0.8330-0.8350 window.
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Majors
After a brief post-payrolls blip higher, the USD index ended Friday close to where it began. The JPY was the key underperformer, and the NZD the strongest performer.
On Friday night, US payrolls (203k) came in close to the previous month but above the official consensus (185k). The unemployment rate also downshifted to 7.0% from 7.3% previously. There appeared enough positives in the data to support risk sentiment and solid equity performance (S&P500 +1.1%). This is despite the market now weighing the potential for a December start to the Fed’s ‘tapering’ process. The USD index mimicked the pattern of US 10-year bond yields. It initially spiked from 80.30 to above 80.60 before returning to close around the former level.
The most striking underperformance was seen from the JPY. The USD/JPY, that had been on the ascendancy during the evening, gapped from 102.20 to above 102.80 on the payrolls release. It closed the week at 102.90. May highs around 103.70 are once again in sight.
Today, the final reading of Japan’s Q3 GDP and October balance of payments will be released. However, it may ultimately take further easing announcements from the BoJ to drive the next leg higher in the USD/JPY. We see the USD/JPY approaching 110.00 next year.
Most currencies experienced post-payrolls volatility. Ultimately the EUR, NZD and AUD ended the night higher relative to the USD. The AUD/USD briefly dipped below 0.9000 on Saturday morning, rapidly recovering to end the week at 0.9100. It is relatively light on the AU data front today, although later in the week, key releases for the AUD will be the NAB business confidence survey (Tuesday), Westpac consumer confidence survey (Wednesday) and employment report (Thursday).
Tonight’s highlights will be the release of German industrial production and a slew of scheduled speeches from US Federal Reserve members. However, recent history has shown the market is now more inclined to respond to hard data than to ‘Fed speak’.
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