Whether or not this stand-off resolves itself this week remains to be seen, but there are certainly plenty of things on the horizon to keep a watch out for as Dan and Nate highlighted in their FX Strategy Week Ahead on Friday. Overall, we are still cautious and favour USD strength against ‘risk’ currencies.
In the US, the FOMC minutes will no doubt get some focus, as will the Philly Fed survey. We are also now right in the middle of US earnings season, which to me is likely to be a key factor in determining whether or not this equity rout has legs or not. If “e” holds up its end of the “pe” equation (and certainly the US growth figures have still be decent) then that could see bargain-hunters emerge.
The local data this week also has the potential to add to this confused picture. While today there is the BusinessNZ PSI, the main focus will clearly be on the Q3 CPI figures tomorrow and they are shaping as firm, both at the headline level and within the detail. We believe the RBNZ will look through any strength, as a decent part of it is due to transitory factors, and given the risk to the growth outlook, there is the potential for it to not be sustained. But whether markets (who importantly are still toying with the idea of rate cuts) will be as forgiving if core measures rose further (which looks entirely possible admittedly) is another question. That could drive some NZD outperformance, although given the overall jittery market backdrop, I’m still happy to be a seller on rallies.