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Dairy auction drop sees an initial currency market reaction but NZD has since inched its way back up; EU issues weigh on world markets

Currencies
Dairy auction drop sees an initial currency market reaction but NZD has since inched its way back up; EU issues weigh on world markets

By Kymberly Martin

NZ Dollar

The NZD sits at a similar level, around 0.7800, this morning.

Having pushed higher last night, to above 0.7860, the NZD/USD dropped after the release of the GDT dairy auction results.

This fortnightly event is now firmly on the market’s radar, assisted by the RBNZ’s direct reference to price moves.

Last night’s auction showed a further 7.3% decline in average prices since the previous event.

This will disappoint those hopeful of a bounce.

Recall, the RBNZ is looking for some stability/rebound in prices after the very sharp falls seen since February. The NZD/USD dipped as low as 0.7780 early this morning, before inching its way higher.

There was a fair amount of volatility on the crosses overnight, but with the net result that most now trade at similar levels to yesterday morning. The exception is the NZD/JPY that sits lower this morning, at 85.20. This cross suffered on the back of the dairy auction and as a result of ‘safe haven’ demand for the JPY, in a night of heightened risk aversion.

Today we will receive further information on the broader NZ commodity basket in the form of the ANZ commodity price index.

NZD/USD resistance will be encountered on any probes toward 0.7860. Resistance is seen around 0.7750.

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Majors

With a bit of choppiness in currencies overnight, the USD has moved slightly higher, though the JPY has outperformed.

General market sentiment overnight was pretty subdued, as data showed some disappointments on either side of the Atlantic. Meanwhile in Hong Kong, protests for democracy swelled for the sixth day. Our global risk appetite index (scale 0-100%) has slipped to 57%, from 75% a fortnight ago. Equities declined on both sides of the Atlantic as bonds rallied. The Euro Stoxx 50 and S&P500 are both down about 1%.

The EUR/USD was knocked lower overnight after the final reading of the German September Manufacturing PMI. It showed activity had fallen into contraction (49.9). The EUR./USD then suffered a fair amount of volatility with subsequent US data releases, to sit at 1.2610 this morning.

The GBP/USD showed a very similar trading pattern after the release of a lower than expected UK Manufacturing PMI (51.6 vs. 52.7 expected). The GBP/USD sits slightly lower at 1.6180 currently.

Given these precedents, the market was in no mood to accept a disappointing US Manufacturing ISM and an ADP employment report that was only marginally above expectation. The USD index experienced a sharp fall on the data but was later able to claw its way back to around 86.00.

Amidst all this angst, the JPY was a beneficiary of ‘safe haven’ demand. The USD/JPY declined from early evening highs above 110.00 to sit around 109.30 at present. A more convincing break of the 110.00 level will likely need to wait until risk appetite improves.

The AUD/USD declined sharply yesterday afternoon, after the release of the disappointing August retail sales data (0.1%m/m vs. consensus expectation of 0.4%). The data likely reflects fairly subdued AU consumer sentiment. The AUD/USD then grappled its way higher overnight to trade around 0.8720 currently.

Tonight the focus will be on the ECB’s meeting. The Bank will be under pressure to be seen to be doing something given (i) the recent poor take-up of its TLTRO (ii) weak recent inflation readings, topped off by signs of softness in the German manufacturing engine. The UK construction PMI will also be released.

Daily exchange rates

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Source: RBNZ
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End of day UTC
Source: CoinDesk

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