By Raiko Shareef
NZ Dollar
The NZD has simply tread water over the past 24 hours. After a brief look below 0.78 yesterday afternoon, NZD/USD is back above 0.7830 this morning, just 0.1% weaker for the day.
Yesterday’s QSBO moderated about as much as we expected, with the headline confidence measure easing from +32 in Q2, to +19 in Q3. The NZD was suitably unfazed.
The strength in AUD and JPY overnight has seen the respective NZD crosses push toward the bottom end of recent ranges. NZD/AUD is 0.7% weaker at 0.8890, within striking distance of the 2014 low (0.8860).
The data calendar offers little to provoke a test of this level today, but should tomorrow’s AU employment report prove robust, we may see a short-term break toward 0.88. We pick 0.89 by year-end.
At 84.70, the NZD/JPY is closing in on the 84.50 level, which proved to be fairly robust earlier in the year. We would be surprised to see a sustainable break below 84.0 in the near-term.
Today, we see initial resistance at 0.7900, and support at 0.7750.
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Majors
A rather sleepy night in currency markets, with a mixed set of performances against the USD. Overall, the world’s reserve currency edged lower, with the Bloomberg Dollar Spot Index weaker by 0.1%, driven by strength in JPY and AUD.
With little in the way of top-tier news or data, the IMF’s semi-annual forecast updates dominated financial market headlines. The 2014 global growth outlook was shaved lower yet again to 3.3% driven by minor downgrades to the euro-zone, Japan, as well as major cuts to Russia and Brazil.
The Fund’s assessment that the risk of the euro-zone slipping into recession had grown (hardly ground-breaking stuff) was partly blamed for the swoon in European and US equity markets. The S&P 500 is 1.0% weaker, and the Euro Stoxx 50 is down by 1.8%.
More admirably, the Fund examined its forecasting failures in recent years, noting that it had downgraded the growth outlook at every successive semi-annual update since 2011. It found that half of these misses could be attributed to overly optimistic assessments of the potential growth in emerging markets. The forecast cuts to Russia and Brazil this time around reflect some curbing of this enthusiasm.
Yesterday, the RBA trotted out a policy statement that was unchanged in its meaning, despite some rewording. The Bank continues to expect rates to remain on hold for some time, and while acknowledging the fall in the AUD, pointed out that it remains high by historical standards. Investors saw no reason to hold the AUD back on the back of this bland missive, and let it drift higher. AUD/USD is 0.6% stronger at 0.8820.
The JPY was the other outperformer, which has gained 0.6% against the USD in a steady fashion. This likely reflects some reduced enthusiasm to be short the JPY, after its sharp sell-off over the past six weeks. The BoJ failed to hint of further easing measures, despite acknowledging a slowdown in production. With a step up in ‘quantitative and qualitative monetary easing’ looking less likely, and pension fund reforms reportedly delayed, investors are reassessing when they might see a sustainable break above ¥110.
On the data front, another large miss in European data failed to noticeably weigh on the EUR. German industrial production fell by 4.0% m/m, much more than the 1.5% decline expected. After Monday’s woeful manufacturing data, though, investors were already braced for weakness. EUR/USD is unchanged for the day at 1.2650.
In the US, the JOLTS job opening data surged to a 13-year high in August, thumping market expectations. These data support the outsized gain seen in last week’s employment reports.
Another fairly quiet day ahead, with only the HSBC China composite PMI likely to bother anyone during our session. In the early hours tomorrow, the Fed releases the minutes of its September meeting. But as we received forecast updates and a press conference at that juncture, we doubt the minutes will reveal much new information.
Other news: *UK industrial production +2.5% y/y vs +2.6% exp.
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