US budget deal nears, this time without a crisis; UK economy data expected to be strong and possibly push GBP:NZD lower

by Kymberly Martin

NZ Dollar

The NZD/USD sits a little lower, at 0.8260, this morning. Yesterday afternoon the NZD/USD touched above 0.8320, before starting a gradual descent that extended overnight.

Currency markets in general appeared somewhat lethargic last night after the excitement of last week’s US payrolls data.

For today, NZD/USD resistance remains in the 0.8330-0.8350 window, while support is seen at 0.8230.

There is a lack of US data releases this evening, so broad risk sentiment may be derived from the release of Chinese data (industrial production, fixed assets, retail sales) due early this evening.

Signs of solidity in November could be sufficient to shore up improving global growth expectations and risk appetite generally. The ‘risk sensitive’ NZD/USD would be a beneficiary.

The NZD/AUD pushed on as high as 0.9130 last evening but has subsequently subsided to sit back at 0.9090 this morning.

With little on the domestic agenda (except electronic card transactions) the fate of the cross may be heavily influenced by the release of the NAB business survey today (1.30pm NZT).

The NZD is a little lower relative to its European peers this morning. This is particularly true relative to a stronger GBP overnight.

The NZD/GBP has returned to sit below 0.5040 this morning. The delivery of a strong array of UK data tonight, provides the greatest risk that the NZD/GPB re-tests key support at the 0.5000 level, over the coming 24-hours.

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Majors

Currencies traded fairly tight ranges overnight. The GBP outperformed while the JPY continued its underperformance.

After last week’s anticipation of US payrolls, markets appeared somewhat directionless overnight. As our risk appetite index (scale 0-100%) remained fairly steady around 65%, equities provided modest positive returns.

The Euro Stoxx 50 closed up 0.29% and the S&P500 is currently up 0.20%.The broad CRB global commodity index continued its push higher, now 2.5% off its November lows, which marked the lows on the index since June 2012. The WTI oil price has also rebounded from November lows to now sit around $97.70. Both may reflect increased confidence in the global growth outlook.

Overnight, headlines announced that US budget negotiators are nearing a deal. However, this would still need to be passed by Congress. The deal would be an exercise in compromise. Both Democrat and Republicans are attempting to avoid a further US government shutdown, and to meet a deadline by the end of week. Elsewhere, it was very quiet on the news and data front.

The only real data of note was the release of German industrial production for October (-1.2%m/m vs. 0.7% expected). The EUR briefly slipped on the data but overall ended the night higher, around 1.3730 this morning.

Meanwhile the USD index dabbled sideways just above 80.20 for most of the night as the JPY continued to weaken. The USD/JPY pushed up to 103.30 this morning, appearing to once again be attempting an assault on the May highs of 103.70.

The AUD/USD sits a fraction lower this morning, around 0.9090. Having weathered last week’s US payrolls release, its greater challenges this week will be domestic. Today, the NAB business confidence survey will be released. In October, the confidence component of the survey fell back to +5 having rallied strongly in September in the wake of AU elections.

The GBP has been the strongest performer amongst its peers over the past 24-hours. Overnight the GBP/USD climbed from around 1.6340 to above 1.6400. This evening, UK industrial production and trade balance data will be released. The NIESR also releases its UK GDP estimate. In addition, the Bank of England’s Carney speaks at the Economic Club in New York. A positive tone to the data could be sufficient for the GBP/USD to re-attempt a break beyond key resistance at 1.6440..

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