by Raiko Shareef
NZ Dollar
The NZD cooled off slightly on Friday, paring its post-RBNZ gains.
The NZD/USD fell 0.3% to 0.8670.
The dip lower was in line with the AUD and much of the emerging market set, likely a reflection of cautious risk sentiment given developments in Iraq.
The GBP’s outperformance over Friday helped shunt NZD/GBP lower by 0.5% to 0.5110, back toward its pre-RBNZ levels.
The NZD has held its gains against the EUR, consolidating, just above the 0.6400 level.
Coming up this week, the Q1 GDP report looks to be the marquee event. We are expecting a year-on-year gain of 3.7%, building toward the 4.0% mark by the end of the year.
While the information due this week is fairly dated, we suspect it will serve to remind offshore investors of NZ’s outperformance on the global scale, especially in the wake of the RBNZ’s rate hike and stern commentary last week.
Today, initial resistance is at 0.8700, with support around 0.8630.
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Majors
Price action over Friday was relatively subdued after a fairly hectic week. This morning, market sentiment is likely to be dictated by rising violence in Iraq and (to a lesser extent) the Ukraine.
Civil war looks to be an apt description for events currently unfolding in Iraq, OPEC’s second-largest oil producer. Over the weekend, Sunni extremists claimed to have executed 1,700 Iraqi Army soldiers, supposedly all Shiites. Even if the claim is proved to be unfounded, the intent (to fuel sectarian violence) is likely to be successful. Oil prices edged higher on Friday, with WTI up 0.4% after Thursday’s 1.9% surge.
The prospect of rising oil prices continued to take its toll on emerging market currencies, which generally weakened against the USD on Friday. Worst hit was the Indian rupee, which lost 0.9%.
Ukraine will observe a national day of mourning today for 49 military personnel killed as a plane was shot down by rebels. The escalation comes amid reports of Russian tanks coming into the hands of separatist forces. Adding to tensions, Russia is threatening to shut off gas supply to the Ukraine if it misses a deadline to pay $1.95b of debt for past supplies. The deadline is6pm Monday GMT.
Quite separately, the GBP is up 0.7% from early Friday levels after BoE Governor Carney struck an unexpectedly hawkish note in a speech to London’s bankers. He said, “There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced ... it could happen sooner than markets currently expect”. This, after a distinctly dovish quarterly Inflation Report just a few weeks ago, provoked an appropriate surge in GBP to 1.6970, within striking distance of the 1.70 level that was rejected in early May.
This week, all eyes are on the US Federal Reserve (Thu morning), with growing speculation that the central bank might be forced to acknowledge (modestly) rising inflation. Today, the RBA’s Chris Kent comments on the labour market, which will be of great interest to Australia watchers. Later on, the US Empire manufacturing index and industrial production will attract attention.
Other news:
* US core PPI -0.1% m/m vs +0.1% exp.
* US U of Mich. consumer confidence 81.2 vs 83.0 exp.
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