Market Drivers for June 30 2014

NZ under pressure after weaker business sentiment

GE Retail Sales miss

Nikkei 0.44% Europe 0.27%

Oil $105/bbl

Gold $1315/oz.

Europe and Asia:

NZD Business Confidence 42.8 vs. 53.5

EUR GE Retail Sales -0.6% vs. 0.8%

GBP UK Mortgage Approvals 62K vs. 62K

GBP UK Net Lending 2.7B vs. 2.5B

North America:


USD Chicago PMI 9:45 AM

Its been a relatively quiet start of the week in the currency marked by tight ranges in most of the majors and some end of the month positioning especially in euro and cable. The commodity dollars were the weakest of the bunch with kiwi coming under the greatest selling pressure after New Zealand business sentiment data fell sharply.

The ANZ Business confidence survey dropped to 42.8 from 53.5 as the combination of higher interest rates and lower commodity prices weighed on sentiment. This was the fourth consecutive monthly drop and the index now stands more than 20 points lower that the February reading suggesting that conditions on the ground have deteriorated markedly.

In response to the news the kiwi slid through Asian and early European trade dropping to a low of 8725 before finding some bids. The pair has once again failed to clear the 8800 level on Friday and today’s correction suggests that it may be in the process of setting up a double top at this level as investor doubts about NZ growth and monetary policy begin to escalate.

The unit continues to attract carry trade flows, but if US 10 year yields have bottomed at the current 2.50% level, further upside in the kiwi is likely to be problematic as specs unwind the recent trades.

Meanwhile in Europe the data was mildly mixed with German retail sales showing yet another miss at -0.6% vs. 0.8% eyed while in UK the mortgage approval data was right in line at 62K. Both currencies essentially ignored the data with EUR/USD holding its levels at 1.3650 while cable remained abound 1.7025. Euro and pound may see some further adjustment on end of month flows today, but action is likely to be quiet as traders gear up for the major event risk later in the week with both the ECB meeting and US NFPs falling on the same day.

We continue to believe that near term price action in FX will be driven primarily by US rates. Last week the greenback took a hit as the 10 year yields slid towards 2.50%, but for now that level appears to be support and if bonds yields could stabilize and rally from that base the dollar will firm up as the week proceeds. The market appear to be torn between the surprisingly weak US economic data in Q1 of this year and the seemingly stronger evidence of growth in the most recent economic reports. If this week’s data could surprise to the upside it could tilt the sentiment towards the buck and the early profit taking in the commdollars could spread through the full G10 complex.

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