By Kymberly Martin
NZD
The NZD was once again in the bottom ranks of currency performers over the past 24-hours, declining 1.40% relative to a broadly stronger USD. It trades around 0.8220 this morning.
Risk appetite remained muted overnight, with our risk appetite indicator (scale 0-100%) languishing at 30%. The Euro Stoxx 50 closed down 1.30%. After the US holiday on Monday, the S&P500 opened down almost 3% but has clawed back to be down around 0.70% currently. A positive surprise on the US non-manufacturing ISM helped to improve sentiment.
A lack of risk appetite weighed on the NZD/USD that drifted lower overnight. The NZD/USD spiked as high as 0.8380 after the shock Swiss National Bank (SNB) intervention. (see below) It then declined steadily to around 0.8220 currently. The Fonterra auction overnight showed a further modest decline, with prices falling 1.4% in USD terms, but remaining relatively flat in NZD terms. The impact on the currency was not significant.
The NZD/AUD declined overnight. Yesterday, the RBA kept the cash rate at 4.75% as expected (see fixed interest section below). Its comments confirmed our expectation that it will remain on hold for some time, with little inclination shown for cutting rates. The AUD/USD touched above 1.0600 overnight, before trading to 1.0500 this morning, relative to a stronger USD. The NZD/AUD traded down from 0.7890 to 0.7820.
The NZD was relatively range-bound relative to both the EUR and GBP overnight, not-withstanding some volatility around the SNB announcement. The NZD/EUR trades around 0.5880 this morning and NZD/GBP at 0.5150.
Today’s NZ wholesale trade data release has been rescheduled until next week. There are no scheduled data releases today, therefore the NZD will continue to take its cue from developments in global risk appetite.
Majors
The USD was broadly stronger in the past 24-hours. The CHF is down 8.6% relative to the USD after the SNB intervened to stem CHF appreciation.
The SNB surprised the market by setting a ceiling for the CHF against the EUR. The minimum exchange rate of EUR/CHF was set at 1.2000. On the announcement, the EUR/CHF gapped from just over 1.1000 to above 1.2000, and the USD/CHF shot from 0.7850 to above 0.8550. This is the level it last traded at in May this year, before risk aversion saw “safe haven” demand for the currency push it to “massively overvalued” territory.
The actions raise the possibility that other central banks, such as the Bank of Japan, will step up their efforts to stem the appreciation of their currencies. The JPY also weakened markedly after the SNB action. From below 76.80 the USD/JPY surged to almost 77.70 directly after the announcement. After subsequent volatile trading it trades around 77.60 this morning. This is still someway below the 79.00 level where the BoJ first intervened back in March following the Japanese earthquake.
Elsewhere, the USD was stronger overnight. It was jagged around on the SNB announcement but soon began a steady ascent, assisted by a better-than-expected ISM non-manufacturing number. It came in at 53.3, above the previous number of 52.7, and ahead of expectations for a decline to 51.1. It marked the first positive US data surprise in some time. In a speech by Fed’s Kocherlakota he said that it is “unlikely” further Fed easing will be required. The USD index traded up from 75.20 to 75.90.
The EUR/USD spiked higher after the SNB action from around 1.4100 to as high as 1.4270, before beginning a gradual descent relative to a stronger USD. Sentiment toward the EUR was also not helped by ongoing concerns regarding the implementation of Italian and Greek austerity plans, against a backdrop of nationwide strikes in Italy. The EUR/USD traded down to 1.3980 this morning.
The GBP/USD showed a similar pattern of trading to the EUR/USD, spiking higher on the SNB announcement, before easing off to trade around 1.5930 this morning.
In the day ahead, Australian GDP will be released. This evening, industrial production data for the UK and Germany will be released. The BoJ and BoC both make rate announcements today and are expected to remain on hold. The Fed releases it Beige Book economic survey tonight.
Fixed Interest
NZ swap and bond yields fell further yesterday, following the lead of their off-shore counterparts. Curves continued to flatten.
2-year swap yields fell a further 6bps yesterday, taking them to 3.25%, testing the bottom of their range since April. 10-year yields fell 11bps to 4.56%, taking them closer them to early 2009 lows of around 4.30%. The 2s-10s curve flattened further to 131bps.
Bond yields also declined following off-shore moves. Yields on 13s were down around 6bps to 2.94%, while the yield on 21s fell 9bps to 4.36%. However, NZ 10-year yields continue to trade above their Australian counterparts that have dropped to 4.21%.
Yesterday, the RBA kept the cash rate at 4.75% as expected. It referred to increased US and European risks, but said there was little evidence of any impact on other regions. It stated China growth still looks solid, commodity prices high and Australian national income is growing strongly. While still signalling concern about medium-term inflation its statement added this month “a key question will be the extent to which softer global and domestic growth will work, in due course, to contain inflation”.
The commentary confirmed our view that the RBA looks to be on hold for some time. The market still prices 130bps of rate cuts from the RBA in the coming year.
Australian swap yields bounced off their lows after the announcement, with 3-year yielding 4.36%.The NZ-AU 3-year swap spread moved more negative to -88bps.
Overnight, the US 10-year yield plunged on the open to almost 1.90%. However, it gradually recovered to trade back up to 1.98%. German 10-year yields also had a volatile night, trading as high as 1.93%, before returning to trade close to the lows at 1.85%.
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See our interactive swap rates charts here and bond rate charts here.
Kymberly Martin is part of the BNZ research team.
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