Kiwi Charges Higher on Euro Optimism

The New Zealand dollar starts the week a full cent higher this morning vs. the USD after renewed optimism from Europe boosted global markets. The kiwi was the best performing currency outpacing the Aussie dollar, which helped the NZDAUD crossrate move back above .7700. The Euro also posted a solid gain rising as high as 1.2300 vs. the USD, up from last week’s low of 1.2050. The improved market sentiment was helped by the US GDP number, which was better than expected. Looking to the week ahead, we have a big week of meetings with both the US Federal Reserve and ECB meeting.

In Europe, after Mario Draghi’s reaffirmation of his commitment to retaining all the Eurozone members last week, Germany’s Chancellor Angela Merkel and French President Francois Hollande issued a joint statement stating that ‘they will do everything necessary to protect the joint currency’, adding ‘Germany and France are bound by the deepest duty to keep the 17-nation bloc intact’. On Thursday, the ECB meet for the final time before departing for their month long summer break, where it is likely that they will once again cut the interest rate by another 0.25% from its current level of 0.75%. They are also expected to announce plans for further bond buying, either directly or through one of the rescue funds which have been set up. The ECB meet on Thursday night so we will know the outcome on Friday morning.

In the US, the Commerce Department reported on Friday that economic growth slowed less than forecast, rising at an annual rate of 1.5% for the second quarter, compared with forecasts of 1.3% and although the figure is still down on the first quarter growth of 2.0%, it is still positive growth. The data is likely to ease expectations that the Fed will look to take further monetary action at this weeks Federal Open Markets Committee meeting. Expectations are that they will update their economic outlook and possibly hint at some more QE at their September meeting, which is a full review meeting. On the data front, we have consumer spending and confidence out on Tuesday, manufacturing out on Wednesday and employment data out on Thursday.

New Zealand data features the National Bank business confidence survey, which has long been well above actual economic outcomes and more importantly, will be Wednesday morning’s Fonterra online Dairy trade auction. The recent drought in the US has pushed up commodity prices in the US and should see higher prices at Fonterra’s online auction (see graph below).

The ongoing US drought continues to push commodity prices higher