DB FX Daily: London News on the Global Economy Remains Supportive of AUD/USD

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FX Daily: London
News on the Global Economy Remains Supportive of AUD/USD
News on the Global Economy Remains Supportive of AUD/USD and NZD/USD
Underlying our near-term bullishness on AUD/USD is the strength of the global economy outside the US, further evidence of which was provided by the stronger Chinese data this week. These data support for now those looking for a "decoupling" in the global economy away from the US. Fears that this stronger data would lead to a strong policy response led to some turmoil in risk markets on Thursday (and weakness in AUD and NZD), but the official commentary following the data was sanguine about the risk of overheating. Most notable was the remark from an SSB spokesperson that while most macro data showed an acceleration, and despite the increase in headline inflation, non-food inflation remains steady, and the current pace of economic growth remains supported by available resources. This is consistent with the view of our Chinese economic team that the government is not overly worried about an overheating of the real economy. With these comments dampening fears of an aggressive policy response, likely the more important implication for now is the evidence the data provides of the resilience of the global economy so far to sub-trend US growth. Indeed as we write the Asian equity markets, and AUD and NZD, appear to be taking this view and have recovered much of Thursday's weakness.

Looking to Buy the Dip in NZD/USD an RBNZ No-Move May Provide
One of the key reasons for our near-term caution on NZD/USD has been the stretched nature of the recent move, so the consolidation of the past couple of days may prove to be a positive development. Our other concern (and one that still remains) is that the market may become a little cautious that the recent rise in NZ mortgage rates may result in softer data in coming months - in particular in the housing sector. But as this week's REINZ data showed, the housing indicators remain robust for now, and with the USD firmly in a downtrend, we see the nearterm backdrop for NZD/USD as mostly favourable. A decision by the RBNZ to leave the OCR unchanged next Thursday (as our NZ economist expects) may provide a dip in NZD/USD given that a 25 basis point hike is 2/3 priced into rates markets. We would look to use any such weakness as an opportunity to go long NZD/USD.