Digesting Dairy Auction

Support around 0.7080 for the NZD should remain untested as the market digests early morning Fonterra auction results, says Khoon Goh, Head of Market Economics and Strategy ANZ.

“Offshore equity strength will also assist in the NZD looking for topside resistance,” he said.

“A selloff in US rates and a strong Fonterra auction should see paying interest emerge today in the NZ rates market.

REVIEW

CURRENCY:  “All action overnight for the NZD after it spent a day lurking around 0.70USD.  Early morning Fonterra auction results ensured recent short positions were quickly closed driving the NZD back above 0.71USD.”

GLOBAL MARKETS:  “A day when equities struck back.  Encouraging economic data saw global equities sharply higher, with European equities up 2.7% and the S&P500 up 2.7% as I write.  US Treasuries got hit hard, with the US 10-year bond yield passing 2.6% at one stage.  Commodities were stronger, as were commodity currencies.”

KEY THEMES AND VIEWS

SOME GOOD US DATA BUT WILL IT LAST?  “The economic dataflow out of the US was actually on the weaker side on the whole.  The ADP employment number unexpectedly fell, and the construction spending data was ugly when you take into account historical downward revisions. 

“But the markets ignored the negative data and focused solely on the better than expected ISM print. 

“Following the stronger China PMIs yesterday, markets were clearly in the mood for a return to risk, and the ISM provided the right excuse for it.

“Equities were sent higher, bond prices fell, commodities were bid up, and the NZD and AUD put on strong gains overnight.  The AUD also benefited from their strong GDP data yesterday while the NZD was helped by a strong globalDairyTrade auction result.  Of course, global growth concerns have not exactly gone away, and tomorrow’s nonfarm payrolls number could yet prove to be a reality check for the markets.

THE LUCKY COUNTRY.  “The Australian Q2 GDP print of 1.2% for the quarter was a strong result in itself.  But the positive news does not end there.  The RBA Index of Commodity Prices showed a 2.7% increase in August in SDR terms to a new record high. 

“This is the 13th consecutive monthly rise, and was driven by higher prices for iron ore, coal, wheat and barley.  The index is 53% higher compared to a year ago. 

“In contrast, NZ’s major export commodity prices, as measured by the ANZ Commodity Price Index, fell 1.4% in August for the third month running (though the strong globalDairyTrade auction overnight might see this reverse in September). 

“Based on fundamentals, the NZD should continue to underperform the AUD.” 

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