NZD pushes higher against the USD ahead of Wheeler speech and RBNZ view of local prospects. NZD gains against the AUD as well

By Kymberly Martin

Overnight, the USD was broadly weaker as European currencies strengthened. The NZD/USD was a beneficiary, trading at 0.6610 this morning.

Market sentiment overnight was poor as commodities fell further and negative momentum in the Chinese equity market re-exerted itself. The Shanghai Composite fell 8.5%.

Ahead oftomorrow night’s US FOMC meeting the market appears to be losing faith in whether the US Fed will actually, finally raise rates this year.

The USD was weaker across the board, also suffering in the backdrop of a firmer EUR. The rebound in the EUR/USD was assisted by a better-than-expected German Ifo survey. Both current conditions and expectations surprised positively, against fears that this readings might have been dampened by the Greek crisis that dominated news flow earlier this month. The EUR/USD pushed up from 1.1000 last evening to sit at 1.1100 currently.

The AUD/USD experienced some choppy trading overnight. In the early hours of this morning, it gapped through resistance at 0.7300 to trade above 0.7320. However, the bid for freedom proved short-lived and it has subsequently drifted back down to 0.7280. In terms of the big picture, we see the AUD/USD as now close to ‘fair value’. We see the AUD/USD in a new range below 0.7500, and will not be surprised to see it touching 0.7100 by early next year.

The NZD/USD has pushed a little higher over the past 24-hours. From 0.6580 yesterday afternoon it reached toward 0.6640 in the early hours of this morning, before slipping to trade at 0.6610 currently. The weaker USD overnight helped the move.

The market may also be pre-positioning itself ahead of the scheduled speech by RBNZ Governor Wheeler tomorrow morning on the NZ economy (details are to be released to the RBNZ website). After last week’s RBNZ statement was perhaps not as resoundingly dovish as some had anticipated, the market may be wary of more of the same this week.

Whilst the Governor may elaborate on serious and well-founded concerns for the dairy sector, he may balance this against still solid activity elsewhere; medium-term inflationary pressures seen via the plunge in the NZD; and still bubbly Auckland housing activity that shows signs of seeping out to surrounding areas such as Tauranga (the venue for the speech).

Ahead of this, we have a smattering of US data releases tonight, though the main driver of sentiment toward the USD will be tomorrow night’s US FOMC meeting.

Kymberly Martin is on the BNZ Research team. All its research is available here.