NZDUSD
Lending to Kiwi pessimism during the New York session, Julys trade deficit widened considerably more than previous estimates. Expected to simply double the deficit witnessed in June, imports outpaced exports marking a A$744.7 million shortfall. The deficit adds to concern over the teetering health of the economy. Although the housing sector is experiencing a rebound along with supported retail sales, manufacturing and production continue to lag along an eroding and growing deficit. The overall continuing concern is likely to add to momentum heading into the overnight session with only food prices report lending any sort of reprieve in a relatively dull end to the week.
Dollar fundamentals contributed to the overall Kiwi bearishness. Released in the morning session, US durable goods orders declined a whopping 2.4 percent on the month. Reversing the positive climb seen in June, the core figure lent some strength to the dollar bull as the core figure, excluding the volatile transportation component, rose more than expected. Core goods remained buoyed by increased investment as orders for planes and automobiles led to the overall headline dip. Offering a pick-me-up to the recent string of disappointing US data, the euphoria is likely to remain weak as we head into the weekend. Looking ahead, there remains plenty of US data to the downside set for next week.
NZDJPY
With a growing deficit, overall market sentiment may be siding with a standstill decision when the Reserve bank of New Zealand next meets in the coming quarter. Expected to raise on higher inflationary pressures and sustained consumption demand, the central bank led by Governor Alan Bollard may have to reconsider the notion as a wider deficit is surely to erode at overall growth, making the speculated rate hikes in the near term obsolete. Rather, a hike decision during times of eroding growth may very well curb expansionary prospects, serving as counter productive to the overall economy. The notion is a definitive concern as the economy continues to border in the red.
Yen fundamentals were absent on the day. However, this did not deter speculators from positioning pre-release of the upcoming consumer prices report. More than likely continuing the uptrend of price increases, the report is expected to offer further indications of an inflationary environment, purporting the start of a string of rate increases for the worlds second largest economy. This notion alone bolstered the move to the downside even as traders continue to see carry trade opportunities, holding the Japanese yen in high regard.
Continuing on the channel that started two weeks ago, the NZDJPY currency cross is setting up for another test of support at the 73.69 floor. The level is likely to hold yet again as it coincides with the 73.60 (23.6 percent fib from the monthly move) figure. A break at this level will likely see capping at the 73.00 figure where bids should emerge on carry trade interest. Upside potential, comparatively, would see a ceiling at the 74.50.
EURNZD
Euro data purported a move in favor of the majors crosses, and the EURNZD was no exception following the wider than expected Kiwi economic data. In favor of the Euro majors positive move, the IFO institute reported confidence by businesses in the regions largest economy remained relatively stable against a considerable drop expected by the consensus. A much more positive report compared to yesterdays Belgian based report, the survey purports an optimistic environment for the Euro zone compared to a relatively pessimistic consumer perspective seen just earlier. Boosting the sentiment seemed to be a pickup in construction spending in the second quarter as the region experienced the fastest rate of expansion since the first quarter of 2001. These serve as all the more reason for the European Central Bank to consider further tightening as President Jean Claude Trichet remains steadfast in his hawkish views. Traders will now be looking ahead to the economys consumer price index reports set for the overnight.
Al Bawaba
