The NZD has weakened against a fairly steady USD over the past 24-hours.
Overnight, in relatively calm markets, the USD and EUR traded reasonably tight ranges, as Manufacturing PMI readings on either side of the Atlantic came in slightly above expectation.
Manufacturing activity in the US and Eurozone remains in expansion, though the modest pace in the US likely reflects the impact of a stronger USD and muted global demand. The EUR/USD has traded between 1.100 and 1.1050, currently at 1.1020.
By contrast, the GBP was catapulted higher as the UK Manufacturing PMI came in well above expectations, at 55.5 in October. This saw the GBP/USD reach toward 1.5500 late last evening. However, it could not sustain the move and has subsequently returned to trade at 1.5420. Overall, the final Manufacturing PMI readings for Oct suggest that global growth (including China) is likely holding up better than many fear.
The NZD/USD’s shine from the weekend appears to have faded quite quickly. From afternoon highs above 0.6780 the NZD/USD now trades at 0.6740. It has also declined on the crosses. From start of week highs above 0.9520, the NZD/AUD has drifted down to 0.9440. It is an important couple of days ahead for the cross, with the RBA’s meeting today, the latest GDT dairy auction in the early hours of tomorrow morning closely followed by the release of the NZ employment report.
Our NAB colleagues expect no change to rates from the RBA today, but are on guard for a possible tweak to the language that indicates the ‘scope’ to cut rates if needed. The latter would limit the extent of any bounce in the AUD on a ‘no change’ decision.
Still, an AUD bounce might support the NZD/USD, but would put the NZD/AUD on the back-foot heading into tomorrow morning’s GDT dairy auction. We anticipate a further small decline in prices at this auction. We see it as a corrective phase following the 63% rebound in GDT prices from Aug lows, rather than the start of a negative trend. However, it may knock a bit of wind out of the NZD.
Near-term support for the NZD/USD is seen at 0.6620. Resistance is eyed approaching the 0.6800 level.
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Kymberly Martin is on the BNZ Research team. All its research is available here.