Better-than-expected US housing data takes shine off AUD and NZD; Carney appeares to shed his hawkish feathers

by Raiko Shareef

NZ Dollar

The NZD lost ground amid broader USD strength overnight.

The NZD/USD is 0.3% lower this morning at 0.8690.

With little in the way of relevant market news or data, the NZD looks have simply drifted lower along with the AUD. Both currencies moved largely in tandem against the USD over the past 24 hours. The AUD came off slightly worse, losing 0.4% to 0.9380.

The improvement in US data, accompanied by an increasing debate on whether the Fed is being complacent on inflation risks, is perhaps taking some of the shine off high-yielding currencies such as the AUD and NZD.

A rise in volatility may have helped – NZD/USD 3-month implied volatility is up to 6.56% from 6.16% on Monday. But in a broad sense, volatility remains extremely low.

There is little hope for punchy price action over the local session, with no data due in NZ and the very-much second-tier skilled vacancies report in Australia. It looks to be another day of 0.8680 to 0.8730.

0.8600 remains the first significant level of support. 

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Majors

The USD is marginally stronger overnight, having benefitted from shockingly strong home sales data.

The GBP lost ground, as BoE Governor Carney appeared to shed his (only recently attained) hawkish feathers.

For most of the session, the market drifted along in a fairly lackluster fashion. Early on, European investors took note of softness in Germany’s IFO business survey for June. The details on that report were only marginally disappointing, but it was enough to see EUR drop briefly.

The big market mover came in form of US new home sales, which surged by +18.6% m/m in May, trouncing market expectations of a +1.4% rise. That was the largest one-month gain since January 1992, and comes quickly after data showed that existing home sales rose by more than expected in May.

Analysts point to rising consumer confidence and solid jobs growth in the US as contributing factors to the housing market impetus. The Conference Board measure of consumer confidence (released last night) seems to support that, rising to 85.2 in June from 83.0 (exp. 83.5). All up, the USD edged 0.1% higher.

Across the Atlantic, BoE Governor Carney and other senior BoE officials fronted up to Parliament’s Treasury Select Committee on the recently-released Inflation Report. That report preceded more recent comments from Carney that UK interest rates could rise faster than the market currently anticipates. The Governor failed to push that latter view in Parliament, instead stressing the “modest and gradual” nature of rate hikes, and their data-dependency. That took the GBP back below 1.700, and it currently sits 0.3% lower for the day at 1.6980.

Tonight, the focus will remain on the US, with durable goods orders and the second-reading of Q1 GDP (widely expected to be revised lower again).

Other news:
* US FHFA House Price Index unchanged  in April (exp. +0.5% m/m).
* S&P/CaseShiller Home Price Index +10.8% m/m in April (exp. +11.5%).

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