The USD is modestly stronger against most major currencies, despite a shocking miss in the NY Fed’s manufacturing index.
NZD, in contrast, has outperformed as investors take the path of least resistance (higher).
The Empire manufacturing survey plunged to its worst level since April 2009. Details were not particularly promising, and will raise fresh concerns about a US manufacturing sector suffering from a high USD and falling oil-industry capex.
That said, such extreme weakness is inconsistent with the messages from other regional surveys. This week’s Philly Fed and national Markit manufacturing surveys (Thu and Fri respectively) will be watched closely.
But the Empire survey’s miss was not enough to prevent the USD appreciating across the board, including against GBP, where hawkish comments from the BoE should have seen that currency supported.
Kristin Forbes, an external member of the BoE’s MPC, warned of the risks of keeping interest rates at zero for too long, in the face of a strengthening economy.
This makes her the latest in a string of BoE speakers who have beaten a hawkish drum. So far, this has failed to translate into actual action, in terms of votes at policy decisions.
NZD outperformed its major peers to sit 0.4% higher against the USD at present, at 0.6570.
We’re unsurprised to see NZD lift. In the absence of another major policy surprise, we expected NZD to continue to outperform this week.
The 0.65 level has proven resilient, and the path of least resistance for NZD/USD is to drift modestly higher.
Add to that the growing expectation that dairy prices might bounce at tonight’s auction, and the still-short speculative market, and NZD/USD could well drift back above 0.66. But we see some good resistance at 0.6620.
In conjunction with our NAB colleagues, we downgraded our AUD forecasts yesterday, in light of continued AU terms of trade weakness and ongoing question marks about the growth of the Chinese economy.
We now forecast AUD/USD at 0.72 in September 2015 (from 0.74). We also extend the profile of the AUD weakness; now seeing a low of 0.69 against the USD in Q1 2015 and we end 2016 at 0.70.
In light of downward revisions to our AUD/USD forecasts and ahead of Wednesday’s GDT auction, we exited our short NZD/AUD trade recommendation established at 0.9158, at 0.8873, for a 3.2% profit.
We no longer see NZD/AUD pushing materially below 0.88 in 2015, and see the cyclical trough at just 0.87 in mid-2016.
Today, the RBA Minutes should not reveal much fresh information, in the wake of many recent policy-heavy speeches. The UK inflation report will be watched carefully, and so will the local dairy auction.
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Raiko Shareef is on the BNZ Research team. All its research is available here.