By Mike Burrowes and Kymberly Martin
NZD
The NZD was the weakest performer over the past 24-hours, declining 2.0% relative to the USD as risk aversion spiked. It currently trades around 0.8200.
The NZD was relatively stable during the day yesterday, falling more heavily over the evening and early hours of this morning as risk appetite deteriorated. Our risk appetite index (scale 0-100%) has fallen from 33% to 30% as US economic data disappointed (see below).
The GBP held up relatively well in the face of a broadly stronger USD. The NZD/GBP declined from around 0.5060 to 0.4970 this morning. The NZD/GBP briefly broke below 0.5000 last week, having previously trading at these levels in mid-June. The NZD also fell relative to the EUR, from around 0.5800 last evening to trade just above 0.5720 this morning.
While the AUD was also heavily pressured by weak risk appetite and accumulating global growth concerns, it outperformed the NZD. The NZD/AUD declined from highs above 0.7970 intra-night, to around 0.7910 this morning.
NZ credit card spending and net immigration data will be released today. However, with the focus on global growth concerns the data will likely be overlooked by currency markets. As Asian equity markets will likely follow their European and US counterparts lower, the NZD will feel further downward pressure today.
Majors
Severe risk aversion has returned overnight as markets reacted to very weak US data. The USD, JPY and CHF were amongst the strongest performers, benefiting from “safe haven” flows.
Market sentiment one again turned negative overnight, as data showed US jobless claims ticked back up over 400k. This was soon followed by the US Philadelphia Fed survey that fell to -30.7 in July (2.0 expected). This is the lowest level since March 2009 and shows a gloomy general US business outlook.
Existing home sales also disappointed at -3.5%m/m for July (2.7% expected). After this trifecta of disappointments the VIX index (a proxy for risk aversion) spiked from 32 to 43. The Euro Stoxx 50 closed down -5.3% and the S&P500 is currently down -4.60%. The CRB broad commodity index fell -2.4% and the WTI oil price -6.4%.
In this backdrop the USD regained its “safe haven” status. The USD index rose from 73.80 to 74.20 overnight. The JPY also benefited from “safe haven” flows, being the only major currency to gain on the USD in the past 24-hours. The USD/JPY eased from 76.60 to around 76.50 overnight.
Trading in the CHF was choppy relative to the USD overnight. The CHF held up better than most other majors, but declined around 0.4% relative to the USD in the past 24-hours. The yield on Swiss 2-year bonds fell to negative 0.06% yesterday, as the SNB continued its attempts to stem CHF appreciation by boosting liquidity to money markets.
The EUR weakened relative to the broadly stronger USD. It traded down from highs of 1.4450 overnight to around 1.4320 this morning. The GBP also declined relative to the USD, but held up relatively well compared to its peers, trading from around 1.6540 to 1.6500 currently.
The “commodity-linked” currencies, CAD, NZD and AUD all performed poorly overnight. Australian swap yields have drifted lower. 3-year yields are now at the lowest level since May 2009, as the market continues to price expectations of around 140bps of rate cuts from the RBA in the coming year. The AUD/USD declined from around 1.0500 yesterday evening to 1.0370 this morning.
Today, risk appetite and the follow through in Asian equity markets will continue to be the main driver of currencies. There is little key data of note, although Fed members Dudley and Pianalto will both speak tonight which may provide some hints of current Fed thinking in the face of heightened downside risks.
Fixed Interest Markets
It was a quiet day in NZ interest rate markets. Overnight, US yields plummeted to new lows as risk aversion spiked.
There was little momentum in NZ interest rate markets yesterday with swap yields closing down about 1bps along the curve. The DMO auction attracted only modest interest. NZ$85m bids were received for NZ$50m of 23s on offer. The average successful yield was 4.59%. Bond markets closed fairly flat on the day, except for the yield on 13s that was up 3bps.
Across the Tasman Australian yields declined over the past 24-hours. 3-year swap yields fell from around 4.40% to 4.25% currently. As a result NZ-AU 3-year swap spreads have become less negative moving from -77bps to -61bps, the highest level since July last year. The market continues to price around 140bps of rate cuts from the RBA in the coming year and 50bps of rate hikes from the RBNZ.
US 10-year yields fell sharply overnight after the release of very weak data. Yields dropped as low as 1.97% (below Dec 2008 lows of 2.03%) before returning to trade around 2.10% currently. German 10-year yields showed a similar dynamic, falling as low 2.03% before returning to trade around 2.09%.
In Europe, while Spanish and Italian long yields remain contained, CDS spreads for most ‘peripheral’ countries have ticked up in recent days.
There are no NZ data releases of note today. We expect NZ yields to open under downward pressure given the spike in risk aversion and decline in US long yields seen overnight.
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See our interactive swap rates charts here and bond rate charts here.
Kymberly Martin and Mike Burrowes are part of the BNZ research team.
8 Comments
And in NZ whats really happening? The Apple industry is on its knees, the Wine industry is in major trouble and the Kiwi fruit industry is being wiped out by PSA. These are all industries held up by our politicians as the great hope for the future, where are they now? silence not a word what a pack of useless creeps. Read this from a Kiwi fruit grower if you doubt what I say, go for a drive in HB to see the apple trees being pulled, we have a major crisis, sheep prices are back, beef back over a $ a kg, thats bad news for exports but the b*llsh*t goes on. at the moment there must be huge stock losses from this storm its killing my sheep and Im in a sheltered north facing valley.
by Miggle | 18 Aug 11, 4:10pm
Hi Andrewj I am involved in kiwifruit and its horrific to see the industry slowly being destroyed. Most growers are in a state of shock and the ones that have been wiped out are left with nothing with their income and capital value of their land gone. We are waiting for the bug to hit our blocks and then its goodnight nurse for our enterprise. but it also looks like the high exchange rate will double wammy us as well in the next couple of years.
Most people think that it was dodgy pollen imports that brought the bug in but with MAF doing the investigations, they aren’t going to blame themselves for allowing this plant material in are they...
A 1.3 billion export earning industry going by the wayside and the govt does not seem to care. My sister who is in Oz says that if that happened over there would be all sorts of hue an cry and MAF would be under the searchlight , ministers resigning etc. here it is "move along sir nothing to see"
Its also not hat simple, Kiwi fruit have a virus that is killing the vines.
If you think you can set up a plant to make an alcoholic beverage and make money, be my guest, the costs to make a bottle of wine are horrendous, we are not stupid farmers and producers, we look at the options if there are none and your position is costing , you terminate, thats whats happening as we type. Its about costs and the hugh $ , its about government meddling and compliance, the export sector is in trouble. Im just telling you whats happening on the ground, ignore me if you wish.
You would make a good commedian.
here are the futures look at the red ink
http://finviz.com/futures.ashx
Aj. You are right, sheep prices are back from bloody fantastic to just plain fantastic. I think you have to put these things in the context of the very big increases over the last year. As you will know the big drought in Southern US states has pressured beef prices through liquidation of capital stock but once thats through the system anyone with beef to sell will be coining it. Of course the currency could offset this abit but a least the supply demand fundamentals are in our favour.
Im sure you are correct about the horticultural sector, I dont know enough to comment. Hopefully the PSA can somehow be contained.My sympathies to those effected.
Andrewj
The local timber industry is also in a mess.Saw milling and remanufacuring has become unprofitable,expect the many job losses to continue and no new investment in plants.
The exchange rate has made many companies unviable.Not just the small ones but the larger ones like Tenon also.NZ products are internationally uncompetitive against producers in Chile/China/Brazil.
To add to the exchange rate problem the raw material costs of logs have risen to a point where they make the raw material cost far too high.
The local market in New Zealand and Australia is not large enough to sustain all the production capacity ,so local producers who have lost their traditional markets in the US are slugging it out in the local market where they used to get a price premium.Its a race to the bottom for many.
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