by Kymberley Martin
NZ Dollar
The NZD/USD has been the strongest performing major currency over the past 24-hours, sitting at 0.8560 this morning.
The NZD has broadly been on a rebound for the past week, as NZ short-end swap yields have also pushed higher ahead of today’s RBNZ meeting.
A 25bps hike today (9am NZT) should surprise few, as it is now almost fully priced by markets.
The RBNZ will be walking a knife-edge at today’s meeting.
It will likely reiterate its commitment to the medium-term process of ‘normalising’ the OCR. But it would rather avoid re-igniting enduring NZD appreciation.
The decline in the NZ TWI since the start of May will be most welcome.
Still the TWI, at 79.80, is almost 2% above the RBNZ’s quarter average forecast.
If the RBNZ is successful in the first goal the NZD/USD will likely see a knee-jerk rise in response, as interest rate differentials push higher.
Initial resistance is eyed at 0.8590 ahead of 0.8640. Support is seen at 0.8520.
However, we remain committed to the view the NZD/USD will by weaker by year-end.
Continued falls in NZ commodity prices, combined with a declining terms of trade should contribute.
Improved economic momentum in the US, and expected rises in US bond yields should also assist a stronger USD. We would also not be surprised to see some ‘normalisation’ (fall) in risk appetite from current elevated levels (our global risk appetite index currently sits at a fairly heady 83%). This would weigh on the ‘risk sensitive’ NZD.
On the crosses the most notable move overnight was the rise in the NZD/EUR. This cross is now probing at the 0.6330 level. This is just short of the 0.6350 level that marked mid-May highs and the highest level since May 2013.
As well as the RBNZ meeting today, the key for the NZD/AUD today will be the AU employment report (1.30pm NZT). The NZD/AUD currently sits just above 0.9120. We expect further rebound in the cross, with a broad range of 0.9200-0.9400 seen to year-end.
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Majors
The JPY outperformed with the NZD over the past 24-hours while the NOK was the worst performer.
Markets were somewhat subdued overnight, and volatility remained low in the backdrop of few data releases. However, a report released by the World Bank showed it had cuts its global growth forecasts for 2014 to 2.8% from 3.2% previously. It cited weaker outlooks for the US and developing economies including China and Russia. This likely helped take the gloss off equity performance. The Euro Stoxx 50 closed down 0.75% while the S&P500 is currently down 0.40%.
The USD index and the EUR have largely traded sideways with the EUR/USD at 1.3530 this morning. However, the GBP/USD received a boost from the release of the UK employment report last night.
The April UK unemployment rate declined to 6.6% (6.7% expected). The 3m/3m employment change also stepped up to 345k (270k expected). However, weekly earnings were still softer than expected. This latter component will be important for the Bank of England which is increasingly under pressure to get on with its tightening cycle. From 1.6760 last evening, the GBP/USD trades at 1.6800 currently.
The JPY was also on the ascendancy. From above 102.30 the USD/JPY has declined to 101.90. In the bigger scheme of things, it continues to bob around the 102 level, as it has since February this year. The next break will likely be toward further JPY weakness, but this will probably take an announcement of further stimulus from the Bank of Japan. Today, Japanese machine orders will be released.
It will be an important day for the AUD today, as the AU May employment report is released. The AUD/USD sits a little higher at 0.9380 this morning, its highest level since mid-May. Our NAB colleagues look for a 20k addition to employment (consensus 10k). This may support the AUD, even though the actual unemployment rate may tick up to 5.9% (from 5.8% in April).
Tonight, the ECB publishes its monthly report and Eurozone industrial production data is due. US May retail sales data will be a highlight in a low key week for US data.Z electronic card transactions data are scheduled for released. However, all eyes will be on the RBNZ’s meetingtomorrow morning (9am NZT).
We suspect the RBNZ will show sufficient commitment to its rate hiking process to extend the near-term bounce in the NZD/USD. By year-end however, we still look for the NZD/USD to be lower and to break below the 0.8000 level.
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2 Comments
Methinks they are dreaming , I stand to be corrected dont we have the highest Bank deposit rates in the OECD ?
There is no g'tee that dairy , food or other commodity prices will drop dramatically.
New Zealand produces food , and everyone has to eat , each and every single one of the 6 ,000,000,000 people on the planet , barring a few hunger strikers
This along with high bank deposit rates ( by OECD standards ) will keep the NZ$ strong
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