NZD up on retail spending
The NZD opened a touch below 0.6600 yesterday before softening mid morning following comments from Governor Bollard in the RBNZ’s Financial Stability Report. The comments, which included a warning that NZD/USD was overvalued relative to economic fundamentals, saw offshore sellers push the currency to its intraday low of 0.6585. The NZD’s stay at this level was short-lived however, as a stronger than expected Q3 retail sales result was released. This saw the NZD move from 0.6590 to 0.6625 and eventually peaked at 0.6639. Afternoon trade was uneventful and there was no reaction to a statement released by rating agency S&P that reaffirmed NZ’s credit rating.
AUD fails to fire on data
Despite a raft of mid tier economic data releases AUD/USD traded a tight 13 point range during the local session. Consumer sentiment for November was down and wage growth was not as strong as expected cementing the view that the RBA will keep interest rates static for a while yet. Q3 house price data bucked yesterday’s trend and rose in the September quarter albeit at a slower rate. Overnight trading saw the AUD soften further finding a base at around 0.7630.
New York manufacturing activity lifts USD
The USD has strengthened against the majors following a better than expected Nov New York manufacturing index reading. This will add some shine to the diminishing picture building for the US economy. This morning saw the release of the US FOMC minutes which mentioned that the Fed remained concerned with inflation threats and will look to data before Dec’s meeting. Sterling has suffered further losses as the BoE quarterly inflation report has showed that inflation is expected to fall to the 2% target by mid 2007, lowering the chance of another interest rate hike. GBP fell to a low of 1.8838 overnight and opens today at 1.8880. The euro has also weakened further with a low overnight of 1.2773 however has recovered slight opening today’s trading around 1.2815. The yen continues to trade a range and opens today around 118.00.
US FOMC minutes. Fed notes less downside risk. The minutes to the Oct 24 meeting indicated the Fed has had some confidence in the economy restored: "the downside risks to economic activity had diminished a little", leaving the risk of inflation not fallen to the extent anticipated as the Fed's biggest concern. Core inflation was still viewed as uncomfortably high, so a rate hike is still a non-zero risk.
US NY Fed survey jumps to 26.7 in Nov. This was stronger than anyone expected, building upon October’s spike with a further rise to a five month high in Nov. It is difficult to dismiss the three consecutive rises in this index, worth a cumulative 16 pts, as an aberration. It really does seem like NY state manufacturing firms are becoming increasingly optimistic. The data on orders, shipments and jobs all point that way too. This is in marked contrast to recent readings from the neighbouring Philly Fed index (very weak in Sep and Oct; Nov due tonight), and the recent downtrend in the national ISM manufacturing survey. Also upbeat were weekly mortgage approvals data. They rose 4.3% last week on top of an 8.8% jump in the prior week.
Canadian manufacturing shipments plunged 3.3% in Sep, their steepest fall in three years. Part of that was due to sharply lower energy prices (shipments are measured on a value, not volume, basis) but auto shipments were also down sharply, both to domestic and US customers. Related to this, auto sales fell 4.2% in September, and the guidance that StatCan gave for October was for a further 2% decline.
Euroland industrial production fell 1.0% in Sep, continuing the tradition of volatility in this series. National data that we had seen prior to this release were not quite as soft.
The BoE quarterly inflation report included revised central projections showing the CPI falling to the 2% target by the middle of 2007, earlier than previously. That projection is based on market pricing; the projections assuming rates remain unchanged were not materially different. So the implication is that the Bank does not feel a further rate rise is currently the most likely outcome. On the data front, unemployment rose slightly in Oct and earnings growth slowed in Sep.
