Market sentiment turned positive overnight on better than expected US economic performance and Shanghai rebound. Commodity prices recover

By Kymberly Martin

‘Commodity-linked’ currencies are top of the performance ranks for the past 24-hours, while ‘safe haven’ currencies have underperformed.

The NZD/USD sits a little higher at 0.6460 this morning.

There has been a notable turn in market sentiment overnight, assisted by upward revisions to US Q2 GDP growth. This means that US GDP growth averaged 2% ann. in the first half of the year, despite the harsh weather-related dent to Q1 growth.

A 5.3% rebound in the Shanghai Composite index earlier in the evening also helped sentiment.

Overall, our global risk appetite index (0-100%) has clawed its way back to 25% from 16% earlier in the week. Commodities have also launched a comeback. The CRB broad global commodity index is up around 3.9% and the WTI oil price is currently up an eye-popping 9.0%.

In this backdrop, the USD has strengthened, but the prize for best performers goes to the ‘commodity-linked’ currencies. Top of these has been the NOK. Benefitting from the rise in the oil price, it has gained around 1.0% relative to the USD over the past 24-hours.

The NZD/USD and AUD/USD have also made some steady, if undramatic, gains. Overnight the NZD/USD has traded between 0.6440 and 0.6490, sitting around 0.6470 at present. There are no domestic data releases scheduled for today. However, if general sentiment remains underpinned by further gains in Asian equity markets today, then the NZD should remain supported. Near-term we see NZD/USD support around 0.6420. Resistance is eyed at around 0.6510.

Over the longer-term we continue to look for NZD/USD to trade down to 0.6200 by year-end, on the assumption the US Fed finally pulls the trigger on rate hikes before then (see Interest Rates).

On the crosses, the NZD has made notable rebounds against both the EUR and JPY. With the current fragile improvement in global risk appetite, markets are shunning the ‘safe haven’ JPY and CHF. The NZD/JPY has risen from early-evening lows below 77.20 to trade at 78.00 currently. Equally, the NZD/EUR has rebounded from 0.5670, to trade around 0.5740 this morning.

Today, Japan will release its July CPI data. Its 2% inflation target still appears quite illusive. Tonight, German CPI is also due. The preliminary reading of UK Q2 GDP will be released. This will be closely watched by a market that has recently pushed back it pricing of a first Bank of England rate hike to the very end of next year. There is also a smattering of US data releases to look out for, along with any headlines that might leak out from the Jackson Hole symposium.

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