By Raiko Shareef
NZ Dollar
The NZD rebounded strongly with its peers against the USD, as the expected date of US policy tightening was pushed out by investors. NZD/USD is 0.9% stronger at 0.7880.
The moves overnight marked a reversal of Friday’s risk sell-off, at least in the currency space. NZD was an outperformer, gaining ground against the TWI crosses (with the exception of the AUD). This has brought NZD/JPY back from the brink, having dipped its toes below the 84.0 mark. It is 0.6% higher today at 84.6. We are wary that a sudden return to risk aversion would send it straight back below 84.0.
Yesterday’s food price index failed to move markets, but we consider it important thanks to its implications. The FPI fell by 0.8% m/m in September, more than we had anticipated. This puts downside risk to our call for Q3 CPI (due next Thursday) which stands at +1.2% y/y.
Today, there are no local data releases, but we will keep our eyes peeled for any stray comments from RBNZ Deputy Governor Grant Spencer. He will be making some comments at an investment conference in Sydney. Even though Bloomberg marks his event as “not public”, we would not rule out the chance of a stray headline.
For NZD/USD, we mark initial resistance at 0.7950, and support at 0.7800.
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Majors
The USD gave up some of its Friday night gains, as investors mulled the prospect of a delay to Fed policy tightening. The Bloomberg Dollar Spot Index is 0.4% weaker, with the AUD outperforming on positive Chinese trade figures.
Equity markets managed to staunch the bleeding, though that was less than assured at the start of Asian trading. Both S&P500 and Nikkei futures dropped lower early on, boding ill for the day ahead.
The S&P 500 was as much 0.8% lower for the day, before clawing to its current level, 0.1% above Friday’s close at 1,908. There is intense focus on the index’s 200-day moving average at 1,906. A close above this level would give equity bulls a much-needed glimmer of hope.
As for the USD sell-off, commentators are pointing to comments Fed Vice Chair Fischer made over the weekend. As we highlighted in yesterday’s note, he said “If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise.”
This is classic policymaker parlance – if this happens in the future, we might change what we do in the future. But in an environment where investors are seriously concerned about the prospects for the global economy, Fischer’s comments reverberated. As a result, markets are pushing back the prospect of an early Fed Funds hike.
We like Cleveland Fed President Meester’s take, which has gotten significantly less airtime than Fischer’s. Asked if the global downturn and strengthening USD had affected her outlook for the US economy, she responded, “They’re risks but I haven’t really reduced my growth rates or changed my inflation outlook because of them. The appreciation of the dollar would have to be a sustained appreciation before I would want to change my outlook.”
Sticking with the subject of central bank speak, BoE Governor Carney came across dovish in an interview, citing weaker global demand, and a benign inflationary environment. We have recently shifted our call for the first UK rate hike from November 2014 to August 2015, having been whipsawed by Carney’s ever-changing stance. The dovish turn helped GBP trail the G10 pack overnight, losing 0.1% to 1.6070.
Yesterday, China’s trade figures for September were significantly stronger than expected. While the trade balance was narrower at US$30.9b (vs US$41b exp), exports and imports both surged (+15% m/m and +7% respectively), much stronger than analyst picks. While AUD was reticent to react immediately, the positive outcome no doubt helped push AUD toward the top of the overnight leader-board. AUD/USD is 0.9% stronger at 0.8760.
Today, NAB’s AU business confidence survey will be a focus across the ditch, as well as an investment conference where RBA Assistant Governor Guy Debelle is a featured speaker. Tonight, we’ll be closely watching Germany’s ZEW survey. Any signs of further weakness might set off a fresh spasm of risk aversion.
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