Markets await Yellen testimony, the Greek Plan, and Fonterra's payout guidance. Could be positive for both the USD and NZD

By Raiko Shareef

NZ Dollar

The USD has posted healthy gains, up against most of its G10 peers overnight.

The Bloomberg Dollar Spot Index is up by 0.2%, with the CHF and NOK the biggest losers.

The USD’s gains come despite a number of US data points adding the run of disappointments we’ve seen over the past two months.

Surprise indices of US data are at their worst level since 2012.

Germany’s IFO survey also printed marginally worse than expected, but we would not entirely attribute EUR’s weakness to that.

On Greece, we note that Greece has pushed back the delivery of its reform letter to international creditors until tomorrow. The market appears to be taking this in its stride, thanks to the appearance of some goodwill, at least from the European creditors. At this point, the market wholly expects this letter to be signed by the creditors.

NOK’s losses are easy to lay at the feet of another spill in oil prices.

WTI crude retreated below $50 for third time this month, and is currently down 2.5% for the day. It seems that every time speculative investors get worked up about a run higher in oil prices, a wave of analysts point out that the global supply glut will continue (if not worsen) over the coming months.

Today, news that Libya has restored some production, and the decelerating fall in US rig counts, has weighed on prices. CAD and AUD, vulnerable to broad, hard--commodity sentiment are off about 0.5% apiece.

The NZD has resisted that pull lower, and sits toward the top of the G10 leader-board. The pull-back in NZD/AUD has now been completely reversed, with the cross back to the magnetic 0.9660 level. We expect it will continue to oscillate around here for some time.

The two big risk events for the NZD this week may well fall in the next 24 hours.

Fed Chair Yellen’s double-header testimony to Congress kicks off in the wee hours of our morning. We expect it to be, ultimately, USD positive.

The FOMC will not want the divergence between the market’s expectations of the first rate hike, and its own views, to grow. Over the past two months, Fed speakers have consistently pointed to a mid-2015 rate hike. The market currently expects it only by October.

We may also get Fonterra’s payout update over the coming day. We are not sure when to expect it, though our best guess is early tomorrow morning.

Our view is that Fonterra will maintain its payout forecast at $4.70kg/MS, but with bias to revise higher.

This should prove to be a positive influence on NZD, but should not be wholly unexpected, given recent auction gain.

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