NZD punched through 0.66 yesterday thanks to a picnic basket of factors, and along with AUD, has led a broad-based major currency rally against the USD. The latter was not helped by a very disappointing ISM report.
One could pick and choose from a multitude of fundamental factors that were NZD and AUD supportive, but both really took off to the races after a strong Australian building approvals number early in the afternoon.
In isolation, this report would not normally be a trigger for large moves (especially with yesterday’s upside surprise due entirely to the volatile apartment component). But coincident with a NZD/USD break above 0.66, an unchanged CNY fixing, and relatively unexciting China PMI outturns, the stage was set for the Antipodeans to build on Monday’s gains.
For NZ specifically, the sharper-than-expected fall in the terms of trade belied strong details, including export volumes. The overnight dairy auction registered modest gains, in line with our expectations.
As with Monday, high-yielding currencies outperformed funding currencies like JPY and EUR. We’d argue this dynamic should continue heading into the ECB decision, and may last as long as equity markets remain becalmed.
With NZD/USD through 0.6610, we were stopped out of our short position, albeit for no loss. We’d look to re-enter that trade ahead of the RBNZ and FOMC decisions next week and the week after, but will likely look for levels above 0.67.
At present, NZD/USD has slipped above the downtrend formed by the May and October peaks (at 0.6669), but faces strong resistance at 0.6700 and 0.6730. Momentum suggests these will be tested.
Elsewhere, the sharp fall in the US ISM manufacturing index, to its lowest level since June 2009, is the talk of the town. The details were soft throughout, but we (and the market) continue to believe that the Fed won’t likely be deterred from lifting off the zero lower bound later this month.
The highlight of today’s session will be RBA Governor Stevens’ speech this afternoon, and the Australian GDP report just 18 minutes later (spare a thought for our NAB colleagues covering those). Fed Chair Yellen is due to make two appearances overnight, but the second is the one to watch: a speech to the Economic Club of Washington. We doubt she will stray from the well-worn script.
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Raiko Shareef is on the BNZ Research team. All its research is available here.