Global risk appetite falls as punters seek safe havens; euro stages strong recovery after being belted

By Kymberly Martin

The ‘safe haven’ JPY and CHF were amongst the strongest performers since the end of last week. Still, overnight the EUR/USD has staged a strong recovery.

There was little new information from the Greek crisis overnight. However, markets responded in varying ways to the weekend’s developments.

Measures of risk appetite were generally challenged. The Euro Stoxx 50 fell 4.2%, European CDS spreads widened, and our global risk appetite index (scale 0-100%) fell from 60% to 48%.

However, in currencies, much of the response had already been felt early yesterday morning (NZT), when the ‘safe haven’ JPY opened 1.0% higher after the weekend and the EUR/USD 1.5% lower.

Overnight, moves reversed. The EUR/USD erased its losses, as the market appeared to be placing its faith in the ECB to ‘do whatever it takes’ to protect the Euro, whatever the outcome in Greece. This morning the EUR/USD sits at 1.1250, from 1.0960 yesterday morning.

The NZD and AUD have also found their feet overnight. The NZD/USD opened yesterday morning someway below Friday’s closing levels, as the market digested the weekend’s news.

However, from early morning lows around 0.6790 the NZD/USD consolidated overnight. It has then pushed higher in the early hours of this morning along with the recovery in the EUR. It trades at 0.6880 currently.

Moves in the NZD/EUR have also been quite striking. At opening yesterday morning, the NZD/EUR quickly pushed up to 0.6220 from 0.6120. However, as the EUR has recovered overnight the cross has slipped back below yesterday morning’s levels.

Moves on the NZD/JPY have also been notable. At the opening of markets yesterday the JPY benefitted from its ‘safe haven’ status while the NZD was the victim of its ‘risk sensitive’ tag.

The NZD/JPY opened well below Friday’s close, touching 83.00 early yesterday morning. This is the crosses lowest level since February last year. The NZD/JPY has recovered overnight to trade at 84.30 this morning.

Some attention will return to the domestic arena today with the release of the ANZ business confidence survey. This measure lost steam last month, led by the agriculture sector.

Any further moderation would likely only encourage the market in expecting RBNZ rate cuts.

While Greece will remain the focus for some time, attention will also return to broader Eurozone fundamentals this evening, as unemployment and CPI data are released.

Kymberly Martin is on the BNZ Research team. All its research is available here.