Weak PMI data out of Asia overnight has seen surprisingly little action in FX, as AUDUSD only settled a slightly lower later in the session, though that may be due to the AUDNZD rally on dovish talk from the Reserve Bank of New Zealand, which saw the bottom dropping out NZD overnight across the board.
The move back below the 0.7600 area is beginning to confirm the bearish case for NZD, and the NZ-Australia rate spreads suggest that kiwi shorts are to be preferred. Positioning is likely to add to the potential for NZD downside from here.
The direct cause of the NZD sell-off was RBNZ's assistant governor, John McDermott, indicating that the bank is not considering any interest rate increases and would actually consider lowering interest rates on “evidence of weakening demand and domestic inflation pressures…”
CHF suffered a sharp sell-off yesterday on news from the Swiss National Bank that it will be widening the application of its negative interest rates. This suggests the SNB is getting restive and will likely become increasingly so if parity in EURCHF approaches again. The timing of this announcement may have helped its impact on CHF as it coincided with a relatively sharp tightening in EUR peripheral spreads yesterday and Greek bond yields falling back.
Today’s economic calendar includes flash PMI’s for Europe, which are unlikely to move the market. As we have long discussed, the forward guidance from the European Central Bank on its quantitative easing programme is so well established that data releases have little meaning in the near term – particularly those on the strong side of expectations. Particularly weak releases over time might be another story as they might suggest attempt from the ECB to do even more.
Chart: NZDUSD
NZDUSD has reversed back below the 0.7600 area and therefore rejected both the attempt above the old range high around 0.7700 and the local resistance around 0.7630. This is a setup that looks more compelling for the bears than it has in a long time due to the weakness in NZD elsewhere. Next step is the 0.7400/50 zone for whether we see a full test of the 2015 lows below 0.7200.
The G-10 rundown
USD: Looking a bit more healthy after the action overnight, though we have to wonder whether we see impressive new directional moves until we’ve seen next week’s Federal Open Market Committee statement.
EUR: EURUSD remains mid-range as we watch the 1.0665/1.0700 zone for further softness as the preference is to sell as long as we remain below the day’s 1.0750 pivot level and as risk appetite has come back to life, supporting the euro carry trade. Not sure today’s PMI surveys out of Europe will have much impact, with positive data possibly encouraging risk appetite and therefore EUR weakness.
JPY: Has defaulted to its recent behaviour as a very low beta version of the USD, with EURJPY likely to push lower if EURUSD pushes lower, etc… First level of interest in USDJPY doesn’t arrive until well above 120.00 (Ichimoku Cloud) and even above that, we have to get well above 121.00 to start threatening a range break.
GBP: Has shown impressive strength, but likely very vulnerable to the downside if today’s retail sales release doesn’t deliver strong results. Hard to see dramatic new highs versus the USD ahead of the UK election and next week’s FOMC meeting. Watching 1.5000/1.4975 in GBPUSD for whether this rally holds.
CHF: Weak on yesterday’s SNB announcements and watching for whether this rally in EURCHF and USDCHF was a one-off spike or whether there is more potential. USDCHF call options out in a month or more might be a way to trade both a weaker EURUSD and the potential for the Greek situation to clear up over the next few weeks.
AUD: Was a bit resilient despite the weak Chinese PMI data overnight, though this may have been on the strength of AUDNZD buying. AUDUSD looks vulnerable, meanwhile, if we cross back below the recent 0.7683 area support.
CAD: Little interest here, though the lack of any follow through lower suggests the risk is reverting back to the upside.
NZD: Sharply weaker on what may prove a key day that sets the tone for NZD from here, both versus the USD and elsewhere. NZDUSD cutting deeply below 0.7600 and a close on a weak note today sets up a compelling argument for a return deep into the lower part of the range toward the sub-0.7200 lows.
SEK: Waiting for next week’s Riksbank for the next step as we have been churning between 9.40 and 9.23 in EURSEK for over a month.
NOK: EURNOK looks vulnerable to slipping back into the higher range above 8.50/55 here if oil sells off, as we never saw any follow through lower after the significant break of that level recently.
Economic Data Highlights
- New Zealand Apr. ANZ Consumer Confidence out at 128.8 vs. 124.6 in Mar.
- Australia Q1 NAB Business Confidence out at 0 vs. 2 in Q4
- Japan Apr. Preliminary Markit/JMMA Manufacturing PMI out at 49.7 vs. 50.7 expected and 50.3 in Mar.
- China Apr. Preliminary HSBC (LONDON:HSBA) Manufacturing PMI out at 49.2 v. 49.6 expected and 49.6 in Mar.
Upcoming Economic Calendar Highlights (all times GMT)
- Eurozone ECB’s Praet to Speak (0745)
- Eurozone Apr. Preliminary Markit Manufacturing and Services PMI (0800)
- UK Mar. Retail Sales (0830)
- US Weekly Initial Jobless Claims (1230)
- US Apr. Preliminary Markit Manufacturing PMI (1345)
- US Mar. New Home Sales (1400)
- US Apr. Kansas City Manufacturing Activity (1500)
- Japan BoJ’s Nakaso to Speak (0300)