Major currencies traded very tame into the week’s end. Upside surprises in second-tier US data helped to firm a bid tone on the USD.
A soggy NZ retail sales figure and S&P ratings actions on NZ financial institutions saw NZD underperform.
US PPI and industrial production printed better than expected on Friday night. Core producer prices rose 0.3% m/m, but the pace remains subdued at 0.6% y/y. The downside miss in the Michigan survey’s headline sentiment index was negligible.
Locally, the Q2 retail sales report undershot expectations. But it was always liable to come in soft, after a very strong 2.7% gain in Q1. We forecast further slowing in consumer spending growth over the next couple of years, partly reflecting the declines in dairy income.
That report, along with S&P’s ratings actions on local financial institutions, helped NZD/USD droop down toward 0.65 on an otherwise quiet afternoon. That level continues to provide support, and we begin this week relatively clear at 0.6540.
We suspect investor interest in testing key support at 0.8842 in NZD/AUD was also a driver of NZD weakness. That level survived a close test on Friday, but looks ripe for another technically-driven push early this week, which should see NZD broadly underperform.
Certainly, there’s little on the calendars on either side of the Tasman likely to materially affect the path of NZD/AUD this week. The RBA’s August meeting Minutes have been largely superseded by the slew of top-tier RBA speeches since that decision. If anything, we’ll be keeping a close eye on Tuesday night’s dairy auction. The strong rally in NZX dairy futures late last week hint at the possibility of a bounce.
Further abroad, there are few (if any) top-tier releases globally. The US CPI report and July FOMC minutes (both Wed) will likely be highlights. Investors will of course be keeping at least half an eye on China’s CNY, though volatility there looks to be diminishing, as the market acclimatises to the new exchange rate regime.
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Raiko Shareef is on the BNZ Research team. All its research is available here.