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NZD and AUD changed less than 0.1% against the USD, NZD trading at 0.6955 USD and 0.9280 AUD; geopolitical risks continue to be centre-stage, Yen the strongest performer as the VIX rises to its highest level since US Presidential election

Currencies
NZD and AUD changed less than 0.1% against the USD, NZD trading at 0.6955 USD and 0.9280 AUD; geopolitical risks continue to be centre-stage, Yen the strongest performer as the VIX rises to its highest level since US Presidential election

By Jason Wong

Geopolitical risks remain centre-stage, which sees softer equity markets, the VIX index  up to its highest level since the US Presidential election in November, and the yen outperforming.

In the shortened Easter week, trading is fairly light.  Economic data releases have had little impact on the market, which has put weight on geopolitical events following last week’s US attack on a Syrian airfield and Trump upping his rhetoric on North Korea.  After diverting warships towards the Korean peninsula over the weekend, Trump tweeted that “North Korea is looking for trouble,” and that the US would “solve the problem” with or without China.

US Secretary of State Tillerson tried to shore up international support ahead of his trip to Moscow.  He attended a G7 meeting which issued a statement urging Russian leaders to use their influence with the Syrian government to help resolve the country’s crisis.  Russia’s response implied it had little common ground with the US view and was critical of US foreign policy.

The yen continues to benefit from the risk off tone, as the VIX index headed up through the 15 mark, well up on this year’s average but still well below the historical average of 20, just to provide some context.  USD/JPY found little support as it broke through 110 and it currently sits near its low for the session around 109.70, down over 1% for the day, and at its lowest level since mid-November.  Yen strength sees NZD/JPY down 1.2% to around 76.3, its lowest level since mid-November.

GBP has also found some support, probably reflecting traders lightening up their short positions than a response to inflation data that came in largely as expected.  GBP is up 0.6% to 1.2490.

Amidst the risk-off environment, the commodity currencies have underperformed, but have largely managed to hold their ground against the USD.  The NZD, AUD and CAD all trade within 0.1% of the previous close against the USD.  NZD sits at 0.6955, close to the middle of the tight range it has traded over the past five days.  Whole milk dairy prices continue to increase, but the market isn’t respecting that dynamic.  More heavy rain for the North Island this week adds to the risk of further reduction in dairy supply.

For the AUD, the market also ignored the strongest business conditions in Australia since the GFC, according to the NAB survey.  AUD sits just under the 0.75 mark, with NZD/AUD flat at 0.9280.

The French Presidential election remains a focus for the euro area.  While the EUR has managed to hold its ground against the USD at around the 1.06 mark, 1-month vol has spiked up, rising to 12.7 from the 8-9 area last week.  France-Germany 10-year spreads continue to move higher, with the French 10-year bond up 3bps to 0.96% and the German 10-year flat at 0.20%.


 

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