NEWS / Foreign Exchange

USD see-saws overnight on mixed data

NZD hits two-week high

The NZD had its strongest single daily gain in almost one-month on Thursday as it defied the weaker than expected business confidence data. NBNZ business confidence for May was weaker across the board; recent monetary policy tightening has begun to take effect and businesses have effectively given the thumbs down to the budget. The data caused interest rate yields to move lower but had no effect on the NZD. Offshore trading saw the market snub the data and the currency blasted up to 0.7377 from 0.7310 on further expectations of a rate hike next week. The NZD is stronger against all the major currencies and opens this morning around 0.7370.

AUD continues its rally

The AUD managed to follow on from its impressive rally yesterday and, like the NZD, traded a two-week high. A weaker equity market in China was expected to weigh on the AUD but the raft of economic data was supportive of the currency and gave it the boost it needed. Further large AUD/CAD orders and stop losses gave the AUD the momentum to rally up to the high at 0.8292 in a move that has surprised many market participants. The currency opens at 0.8280 this morning.

USD see-saws overnight on mixed data

The USD see-sawed within both ends of a relatively narrow range overnight, prompted by mixed data, neither of which gave a clear signal for the short term direction for the USD. Initially the currency fell after Q1 GDP was revised down to record the US economy??™s slowest pace in growth in four years. However it then rallied when data released showed the Chicago PMI, a key regional business indicator, had risen faster than expected. A key component within the data showed that prices paid by factory managers were at their highest for nearly a year, consequently reinforcing the view that the Fed may keep interest rates steady this year. Implied expectations of an interest rate cut this year have now fallen to about 30%, with markets now expecting the Fed to hold interest rates steady at their next meetings in June and August.

US initial jobless claims for the week ending May 26 fell 4k to 130k as expected.

US preliminary Q1 GDP (1st rev) showed growth of 0.6%, versus an initial estimate of 1.3%. This is the weakest quarter since 2002Q2. Inventories and net exports were revised lower.

US May Chicago PMI rebounded to 61.7, much higher than expected, with big gains in new orders, production and employment.

US Apr construction spending rose 0.1% on top of a considerable upward revision to Mar (to 0.6% from 0.2%). Residential spending remained weak, but non-residential was solid.

US Q1 OFHEO house price inflation eased to 4.3% yr (0.5% qtr), the slowest annual pace since the late 1990s.

Eur May EC confidence measures were strong. Consumer confidence rose to -1 from -4 in Apr, stronger than expected, while the overall confidence index hit a six-year high at 111.9.

Eur May CPI flash was unchanged at 1.9% yr, as expected.

Ger May unemployment change: jobless numbers rose 3k following a revised -8k (was -9) in Apr. We and the market had been expecting a decent fall. Nonetheless, the labour market is on an improving trend.

UK Apr net consumer credit was a considerably weaker than expected ??0.5 bn. Higher interest rates and tighter lending requirements are clearly beginning to bite.

UK Apr net mortgage lending was much weaker than expected at ??8.93 bn down from ??9.41 bn in Mar. The data suggests a softer housing market in the second half of the year.

UK May GfK consumer confidence was much stronger than expected, rising to -2 from -6, the strongest outturn since July 2005.

UK May house prices (Nationwide) increased 0.5% (10.4% yr), suggesting that price growth is flattening out following 100bp of tightening by the BoE since August.

UK May CBI distributive trades survey showed sales volumes up for the sixth consecutive month. Worryingly for the BoE, the highest percentage for almost a decade of respondents raising their prices.

Can Q1 GDP rose 3.7% qtr, led by consumption, while investment slowed to 2.2% from 4.3%. The solid growth supports expectations that the BoC will raise rates in July. Mar GDP increased 0.3%, a little weaker than expected. The volatile mining, oil and gas production contracted, but otherwise growth was solid.