DB FX Daily: London Euroland growth and a big week for NZD

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FX Daily: London
Euroland growth and a big week for NZD
Today's Key Data and Events
NOK Rates ann. and inflation report, 25bp hike expected (12:00 GMT)
USD Durable goods for May, -1.0% expected (12:30 GMT)
NZD Current account for Q1, -$NZ2.45bn expected (22:45 GMT)
JPY Industrial production for May, 0.9% expected (23:50 GMT)

Upcoming Event Risks
June 28: FOMC rate decision
July 2: Tankan survey for Q2
July 6: Non-farm payrolls
July 10: BoC rates announcement

Another upward revision to Euroland growth prospects
With the monthly round of Euroland business surveys largely out of the way, our European economists have seen a further rise in their Eurozone leading indictor (see today's European Daily Economic Notes for more detail). Indeed the leading indicator (DBLI) is pointing to a mild acceleration in annual growth to Q2 and Q3, whereas our house forecasts look for a mild deceleration.

The continued solid growth backdrop in the Eurozone has seen Euribor under perform the Eurodollars over the past week or so (and notwithstanding a below expectations print in the widely followed German Ifo). As the chart below shows, this most recent narrowing in the US-Eurozone interest rate spread has also been associated with a modest rally in EUR/USD. With the Fed on long term hold in our view, and European interest rate markets pricing one more rate hike this year with risk of a second, we find it difficult to disagree too strongly with where the respective front ends are. We also don't see this week's FOMC statement as providing much excitement, with our US economists not looking for any substantial wording changes. So despite the prospect of on going robustness in Eurozone growth, it's hard to see this having a significant impact on trends in EUR/USD.

A big Kiwi data week
There is a range of NZ data due over the reminder of this week (with the trade balance for May and Q2 consumer confidence already out). In our view the most important release of the week, given its forward looking nature, could be the June NBNZ business survey due on Thursday. Our NZ economist notes that the timing of the survey means that it will probably only partially reflect the impact of the RBNZ's June rate hike and the substantial further strengthening in the NZD; although it will capture the news of increased payouts to dairy farmers. Thursday also sees the release of the Q1 balance of payments, while Q1 GDP rounds out the week on Friday. Our bias remains bullish on AUD/NZD over the medium term given our expectation of a turn in the Kiwi data against resilience in Australia. That said, we would be cautious in expressing such a view this week given where we see the risks on the key data (especially given our above market GDP pick of +1.2% qoq). Rather we would wait for concrete signs of a turn in the NZ economy before establishing short NZD positions, as opposed to trying to pick the turn.