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Risk-sensitive assets under pressure reflecting concerns for credit quality, corporate earnings outlook and cyclical growth; NZD/USD resistance around 67c, support at 65c

Currencies
Risk-sensitive assets under pressure reflecting concerns for credit quality, corporate earnings outlook and cyclical growth; NZD/USD resistance around 67c, support at 65c

By Kymberly Martin

There has been a lot going on in markets since the release of US payrolls data on Friday night, while NZ celebrated Waitangi day yesterday.

The AUD and NZD were battered by the post-payrolls surge in the USD. Since the start of the week, risk aversion has been the dominant theme, keeping a cap on the AUD and NZD, though both have attempted an early morning rebound. The NZD trades around 0.6630 at present.

As always, when US labour market data is due, it set the tone in currency markets. Although the headline payrolls number disappointed the official consensus, the unofficial ‘whisper number’ was probably lower going into the release. In addition, other aspects of the report (unemployment and hourly earnings) beat expectation and prevented the market getting too carried away with writing-off future Fed action. Consequently, the USD gapped higher.

All peers, expect the CHF, were casualties. The AUD was particularly hard hit. It ended the week around 1.7% below pre-payrolls levels, at 0.7070. The NZD/USD also lost around 1.5%, to end the week at 0.6630.

Since the start of the week, risk aversion has been the dominant theme. Risk-sensitive assets are broadly under pressure, despite little in the way of new data releases overnight. Rather, moves would appear to reflect broadening concerns for credit quality, the corporate earnings outlook and cyclical growth.

In this environment, it is unsurprising to see the ‘safe haven’ JPY and CHF have outperformed.

The USD/JPY is now at its lowest level since Dec 2014, despite the Bank of Japan’s recent move to implement negative rates.

The USD has experience choppy trading relative to the EUR overnight, but the USD index now trades little changed from its end-Friday levels.

Perhaps more surprising in this ‘risk-off’ backdrop, has been a rebound in the AUD, CAD and NZD in the early hours of this morning. However, these moves appear to have coincided with some stabilisation and rebound in the global oil price early this morning. The WTI price has recovered from intra-night lows near US$29.50 to trade at US$30.20 currently.

The AUD/USD has rebounded form lows near 0.7050 to now sit above 0.7100. 

Similarly, the NZD/USD has rebounded from early morning lows approaching 0.6590 to trade back at 0.6630. Resistance is eyed at the 200-day moving average just above 0.6700. Support will be encountered on any pull-back toward 0.6500.


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

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1 Comments

Imported Japanese car buyers had a short price reprieve window slammed shut - but I am sure the Auckland residential property kitchen ATM owners will shrug with indifference. I doubt some Southland dairy farmers will act with such insouciance given bank creditors are apparently bearing down upon those exhibiting a lack of income to support said faux wealth.

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