It was, as hoped, a quiet end to a rather hectic week for local analysts. Currency markets certainly weren’t the centre of attention.
EUR drooped by 0.4% to close at a three-month low. NZD, somewhat surprisingly, outperformed.
US data released on Friday did little to disturb a market keeping a leery eye on the prospect of a September Fed Funds hike.
The undershoot in the U of Michigan’s consumer sentiment survey was put down to rising gasoline and falling equity prices in early July, the latter of which has now been reversed. Core CPI inflation accelerated a touch to 1.8%, which will assist in providing the Fed with ‘reasonable confidence’ that inflation is returning to target.
The broader USD gained 0.2% to close at its highest level since mid-March, thanks to the EUR’s stumble below 1.0850. There was no specific news to blame for this, but it looks to us like the early stage re-establishment of the European QE trade (short EUR, long equities), now that Grexit risk has markedly reduced.
ECB President Draghi’s strident vow to complete his QE programme will encourage EUR bears (us included), especially in an environment of rising US rates.
NZD/USD managed to eke out a 0.2% gain to top the G10 leader-board. That bounce meant that NZD was not (much to our surprise) the worst performing currency last week – its 2.96% weekly loss a smidge lighter than EUR’s 2.97%.
For the time being, the 0.65 level looks to provide some support, with the bottom of the trend channel at 0.6480. NZD is also benefitting from strong support in NZD/AUD at 0.8780, ahead of the 2015 low of 0.8750. NZD does seem due for a period of consolidation, but we would not bank on a material rally, with the fundamental outlook over the near-term rather grim.
Today’s calendar is exceptionally light, and the week ahead is generally the same, barring some high-profile events. Of course, the RBNZ’s policy decision (Thu) is one of those events, but we’ll also be keeping an eye on the Australian CPI report (Wed), RBA Governor Stevens’ speech (Wed), and China’s Caixin manufacturing PMI (Thu). The dearth of Fed speakers this week comes courtesy of the traditional purdah, ahead of next Thursday’s policy decision.
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Raiko Shareef is on the BNZ Research team. All its research is available here.