NZD posts 8½ month high
The NZD opened around 0.6710 and remained static until Finance Minister Cullen made a statement to the media saying that the NZ dollar was “stubbornly high” and in the same breath “inflation was uncomfortably high”. As a result the NZD slipped back to below 0.6700. However it found good support here from bargain hunters and once the market digested Cullen’s comments as nothing new, the NZD literally took off to break through key resistance of 0.6720 en route to an 8.5 month high of 0.6742. Overnight was a repeat of the local session with the NZD initially getting pegged back to below 0.6700 as profit taking sales gathered pace before staging a recovery as technical signals show intra-day momentum remains positive with little in the way of resistance until the 0.6800 Feb highs. Anew high of 0.6754 was posted and it opens this morning slightly lower around 0.6735.
AUD holds onto gains
The AUD managed to hold onto recent gains and consolidate above 0.7700 on Wednesday. Dwelling approvals expanded 6.1% in Sep, slightly higher than expected and supporting the view that the RBA will hike interest rates next week. The currency was given an expected boost and rallied from 0.7733 to 0.7757. The offshore range was almost identical, the AUD failing to capitalise on a weaker USD following their poor manufacturing growth data for Oct.
Soft data adds to bearish USD sentiment
With the markets now in ‘sell’ mode, the release of soft data was enough to prompt further USD selling overnight. In particular, the ISM showed growth in manufacturing activity slowed nationally in Oct, fuelling talk that the next move in US interest rates could be a cut. Other data relating to construction spending and home sales further added to the current bearish sentiment. Elsewhere, the GBP found support on growing xpectations that UK interest rates will be raised early next year as well as later this month.
US ISM manufacturing falls from 52.9 to 51.2 in Oct. The ISM slipped for the third month running in Oct, supporting the weaker message from some regional surveys. The result also sits well with recent subdued industrial production, weak orders outside of aircraft, and of course the sharp slowdown in GDP growth. To put it into perspective, the ISM headline was the lowest since mid 2003, although there was a temporary dip to 51.8 in May last year. After close to five years of industrial expansion (excluding the Iraq War blip which lasted just a couple of months), the ISM is telling us that US manufacturing is not too far off contraction again (i.e. a reading below 50).
US housing data flow was on the soft side too. Sep construction spending was pulled down 0.3% by a 1.1% fall in residential activity, and non-residential construction was hardly offsetting with a way below trend 0.1% rise. As expected, pending home sales resumed their downturn, off 1.1% in Sept, pointing to ongoing weakness ahead in the upcoming existing home sales reports. And mortgage applications fell 3% in the last week of October, meaning all of the late September spike has unwound.
US labour market news was a little more positive. The ADP estimate of private payrolls has not been too bad in the last three months at hitting the official private payrolls estimate into the ballpark, with an average error of only 17k, though it can both under- and overestimate. It rose 128k in Oct. This suggests that our 90k payrolls forecast could be a little on the downside of the likely outcome. The Hudson telephone survey of employee sentiment was a touch stronger in October, although that contrasts with the weaker job sentiment reading recorded in the Oct Conf Board consumer confidence report.
UK manufacturing PMI slipped to 53.7 in Oct, after a temporary bounce at the end of the third quarter.
