New Zealand dollar
NZD trades through 0.7680 stops. The NZD opened just short of 0.7600 yesterday and remained static for the morning with little movement in either direction. A breakout around lunchtime saw the currency pair spike to 0.7620 but it just as quickly retreated from this level to spend the rest of the afternoon trading back below 0.7600. Overnight the NZD found a fresh pair of legs and rallied hard towards 0.7700 with plenty of demand seen from the offshore investment community. A run higher in the equity markets also leant its hand. As we go to print the NZD has just posted a three week high of 0.7750 in unison with the DJI which is up over 330 points.
Australian dollar
No love for the AUD. The AUD traded a fairly tight range yesterday despite sentiment being a little more upbeat toward carry currencies. Holding the AUD back are concerns that demand for commodities would be hurt by sluggish global economic growth. Not even stronger than expected construction work data could inject life into the currency pair. As a result it sat painstakingly short of 0.8800 for the bulk of the day. Overnight the shackles were finally broken and the AUD climbed towards 0.8850 as risk appetite returned to the market. It opens higher this morning however has been entirely outperformed by the NZD.
Major currencies
USD staged corrective recovery as equities strengthen. The USD staged a corrective recovery during yesterday’s trade following US equity markets higher. Dovish comments from Federal Reserve Vice-Chairman, stating that the US economic outlook was “unusually” uncertain affirmed expectations of further interest rate cuts in the US boosting US stocks. The USD strengthened from a low of 108.27 against the yen to post an overnight high of 110.24 before extending gains beyond 110.40 in early trade this morning. The euro sank to a low of 1.4712 overnight before recovering above 1.4780, while Sterling ranged between 2.0582 and 2.0725.
Economic data and events
US Oct durable goods orders fell 0.4%, with the ex-transport number down 0.7%. Ex-defence, ex-transport was down 2.3%. The very soft ex-defence, extransport number will be of concern for the Fed, with the momentum meaning that capital goods are now likely to print negative for Q4.
US Oct existing home sales fell to 4.97m annualised from a downwardly revised 5.03m annualised. This is a new low for this series, which started in 1999. Single family home sales were flat, but multi-unit sales plunged 9.1%.
US Federal Reserve Vice Chairman Kohn dovish. The Vice Chairman mentioned the current high degree of uncertainty as well as the Fed's risk management framework. On moral risk he highlighted the fact that the whole economy should not be punished to teach people a lesson. Market expectations, already through 25bps for December, are now likely to edge towards 50bps.
US Beige book was downbeat, with 7 of 12 regions reporting a slower pace of economic activity, while the remainder generally pointed to modest expansion or mixed conditions. Retail conditions were weak/softening in most regions, while tourism and agriculture were doing well. Manufacturing was mixed, housing market conditions were of course abysmal, and borrowing demand more generally was said to be easing. Outside of products and services that rely heavily on energy and food inputs, final prices were reported to be largely stable or down a bit.
Eurozone Oct M3 was solid in line with yesterday's strong German CPI data (for Nov). The yoy rate rose to 12.3%, a new all time high for the series and well above the 11.5% market forecast. This should be enough to see the ECB remain more concerned about upside inflation risks than downside growth risks when they meet next Thursday (Dec 6).
