New Zealand Dollar Outperforms Australian Dollar as a US Dollar Rally Commences in the Wake of Strong US Data Releases

The New Zealand Dollar (Currency:NZD) continues to be one of the out-performers on the global currency markets as investors continue to price in an interest rate hike at the RBNZ.

"The New Zealand dollar added to its recent gains against the greenback after manufacturing data showed that the sector improved at its fastest pace in nine years in July," says a client note from Commonwealth Foreign Exchange.

Commonwealth go on to say: "The very strong reading of the nation’s PMI report added to the view that the RBNZ will be the first central bank in the industrialised world to begin raising interest rates. While the Aussie has lagged, the strong New Zealand dollar helped pull its antipodean neighbour up along with it."

Australian dollar in new bout of weakness

It was only this morning that Pound Sterling Live published a host of views proclaiming that the recovery in the Australian dollar had the potential to run further.

But, we did also warn that today's US data points could torpedo any recovery, and so it was shown to be the case.

The Australian Dollar is softer across the board as we head towards the London close:

• GBP/AUD is 0.77 pct higher at 1.7125.
• AUD/USD is 0.44 pct lower at 0.9083.
• EUR/AUD is 0.33 pct higher at 1.4579.

There is only one engine driving the Aussie dollar at present… and that is the US Dollar!

US dollar strengthens and drives down all before it

A market sell-off has been initiated on the realisation that the US Fed may start to cut back its asset purchases as soon as September (this is known as tapering).

Driving this expectation is the continue view that the US economy is starting to stand on its own legs.

U.S. weekly jobless claims fell to 320,000 last week, well under the consensus forecast for 335,000 and the lowest reading of initial claims since November 2007.

The data was free of any seasonal or auto sector-related aberrations, which have skewed recent readings of claims. CPI rose by 0.2%(m/m) in July, exactly as expected. On a year-over-year basis, CPI came in at 2.0%, up from the previous month’s reading of 1.7%(y/y). New York’s Empire State survey rose to 8.24 in August, just under the 10.00 expected.

"On balance, the strong claims number and the rise in consumer inflation add to the pool of economic data that argues for a near-term taper by the Fed. The dollar rallied to fresh highs of the session against all of its major rivals following this morning’s first batch of U.S. data," say Commonwealth Foreign Exchange.