It’s difficult to get excited about this market, especially when investor forex enthusiasm seems to be waning. Mind you, the lack of intraday data is not helping the situation as stakeholders migrate over to the record-breaking "equity" class. With no natural fundamental drive, savers seem happier traveling within the respected asset class packs seeking inspiration. Even the overnight Chinese trade data has been unable to ignite forex investor enthusiasm back to pre-NFP levels witnessed last week. The current market moves are becoming a much longer drawn out process.
China’s trade data surprised strong last month, bouncing back to a surplus of +$18.2b from a small deficit of -$0.9b in March. The positive print certainly helps dampen some of that investor concern over the world’s second largest economy where softer numbers had begun to appear over the past few weeks. Even the details were healthier – both the export (+14.7% vs. +9.2%) and import growth (+16.8% vs. +14.1%) surprised to the upside. Gains, especially in imports, should help ease that market concern that the domestic economy is slowing.
Antipodean price action again dominated most of the boring forex range session, just like the AUD had done the previous night after the surprise RBA rate cut. The NZD dropped as much as -1% against it’s largest trading partners at various points throughout the session on comments from the RBNZ’s Governor Wheeler, that Kiwi policy makers had sold some of its "own" currency in April to curb domestic currency appreciation.
The RBNZ in its financial stability report earlier this morning signaled its concerns that rising house prices and household borrowing pose a tremendous risk to their domestic financial system. To counteract this, Kiwi policy makers are expected to increase the regulatory capital required for high “loan-to-value-ratio” housing loans – a similar situation to the Canadians when ex- BOC Governor Carney touted his housing bubble/mortgage concerns last year. RBNZ policy makers estimate that changing loan requirements should result in an average increase in capital held for housing of around +12%.
Governor Wheeler and his fellow cohorts are expected to step up their resistance against further NZD strength, especially now that they have revealed their pain threshold level in the spot market for the NZD currency value. The market should be anticipating more resistance by threatening of further rate cuts and direct spot intervention by the Central Bank. Kiwi policy makers are expected to fiddle more with their fx-forwards and reserves currency management rather than with "spot" outright – the everyday dealer will be disappointed when they do not find RBNZ at the end of their "spot" trade, in truth, it’s probably not sophisticated enough!
The 17-member single currency continues to kick on, very much eyeing tomorrow's option strike price of 1.3200 on the topside. Rumors ranging from the ECB is looking at buying bad loans from southern Europe to the council debating whether to purchase various banks ABS has been providing the EUR support on pullbacks this morning. Even German industrial production data surprise to the upside is aiding the EUR bulls – coming fast on the heels from yesterday’s positive German industrial orders print.
This morning +1.2% gain in German industrial production is much stronger than the -0.1% expected. The data continues to suggest that Europe’s “backbone,” Germany, remains the only standout amongst the contraction that has been witnessed in most of the eurozone. The market continues to see Russian commercial and European corporate buying of EUR’s interest on pullbacks. The recent accumulated longs are finally onside again after EUR price action has extended beyond yesterday's highs. Through its strong resistance point of 1.3150, the EUR has a shot of further upside price action with 1.3200 being the immediate target. The market should anticipate this option level to be well protected ahead of tomorrow’s expiry on the first go around at least!