The USD has seen a mixed performance overnight, weakening against EUR and JPY, but gaining materially against AUD and NZD.
The latter is by far the worst G-10 performer, down over 2.0% at the time of writing.
That move looks exacerbated by technical trading and poor liquidity.
From a fundamental perspective, NZD certainly had little reason to be loved, based on yesterday’s news. The sharp fall in NZ business confidence (see Interest Rates) more than outweighed any positives associated with a punchy 20% rise in building permits. The risk tone provided by Asian equity markets was also poor. The Shanghai composite index traded as low as 3.8% weaker, before paring those losses for a 0.8% loss for the day.
However, NZD managed to keep its head above water well after the close of Asian trading, supported at 0.64. But a drift below that level quickly gave way to a rout. The break of technical support at 0.64 and thin liquidity (with London on holiday) played a large part. A break of NZD/AUD support at 0.8960 compounded NZD’s woes later in the session.
Momentum certainly suggests further underperformance from NZD. We eye tentative support for NZD/USD at 0.6300, and at 0.8850 in NZD/AUD. In the absence of poor fundamental news, these levels should help provide some stability today. In particular, we look for a strong gain in tonight’s dairy auction, with a possibility of another double-digit increase in the Global Dairy Trade Index. Ahead of that, though, the Q2 Terms of Trade release this morning won’t make for pleasant reading. We’re looking for a 3.7% decline.
NZD’s moves look odd against its peers’ performances overnight. The sharp rally in oil prices helped CAD reverse a sharp loss against the USD. And the G-10 heavyweights JPY and EUR posted reasonable gains, retaking some of the jerky losses seen heading into Friday’s close. The upside surprise in European core inflation, and undershoot in the Dallas Fed Index, gave some fundamental support to EUR’s outperformance.
It’s a very busy day for data, with a swathe of final PMIs due globally. China’s official PMI and the RBA statement will be highlights of our session, while the US ISM report and the Fed’s Rosengren’s speech on the economic outlook will provide focuses overnight.
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Raiko Shareef is on the BNZ Research team. All its research is available here.