Second tier data shows improvement both locally and internationally; markets on sidelines, although concerned about Yellen's attitude

by Raiko Shareef

NZ Dollar

The NZD slipped 0.2% against the USD on Friday, in what was an extremely quiet session for markets.

NZD/USD closed just below 0.8700.

The day’s local data releases had little bearing on markets, being relatively low-tier.

The ANZ job ads series took a bit of a breather from its 15.2% y/y rise in April, falling 5.2% m/m in May.

The ANZ consumer confidence measure bounced from 128 to 132, and remains elevated on a historical basis.

This week’s local calendar is very light, with net migration this morning and the monthly trade figures on Friday. 

Strong net migration was a key reason for the RBNZ to keep its rate track unchanged at the June MPS, despite a still-elevated NZ TWI. We don’t expect this to abate any time soon.

For the trade figures, May’s results remain too early to reflect the fall in export prices that we’ve seen this year (given the lags involved), so we’re still picking respectable export growth.

Today, we see initial support at 0.8680 and resistance at 0.8780.

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Majors

Friday proved to be a nothing day for markets, with little in the way of market-moving data or news. Most majors were less than 0.2% changed against the USD.

The CAD was the one exception, rallying 0.6% to 1.0760, its strongest since January. Canadian core inflation surged from 1.4% to 1.7% in May, while headline inflation printed at 2.3%, above the central bank’s 2.0% target. The Bank of Canada has tried to characterise the uptick in inflation as transitory, but the core numbers would appear to contradict that assertion.

Elsewhere, the AUD performed relatively poorly, failing to keep a grip on the 0.9400 level, down 0.1% at 0.9390. Slightly higher volatility may have had something to do with that, with one-month implied volatility up to 5.72% from 5.51% on Thursday.

The GBP was not helped by comments from the BoE’s Anthony Haldane that the Bank was not under immediate pressure to raise rates thanks to low wage growth and subdued inflation. GBP/USD was down 0.2% at 1.0710.

For the week ahead, the data calendar is heavy in the United States and not so much so elsewhere. The pick of the bunch will be the US personal consumption expenditure (PCE) deflator due on Thursday night. PCE is the Fed’s preferred measure of inflation, and rose from 1.4% y/y to 1.6% in April. The measure is expected to accelerate in May to 1.8%.

Part of the reason why this reading will be so important has to do with Fed Chair Yellen’s apparent dismissiveness of US inflationary pressures at her press conference last week. The comments evoked a vocal riposte from commentators wondering whether the Fed is perhaps being too complacent.

We count ourselves among that group, which gels with our positive USD view for 2014/15.

As a result, any comments this week’s Fed speakers make on inflation will be closely parsed. We would warn though that the FOMC’s hawkish wing will be overrepresented (Hawks Plosser and Williams vs Dove Bullard).

This week also sees the preliminary readings for monthly manufacturing indices, kicking off with the HSBC flash China PMI for June. Consensus is picking a very slight improvement from last month, and that outturn should help set the tone for early-week trading.

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