By Mike Burrrowes and Kymberly Martin
The NZD declined relative to the USD overnight, along with most of its global peers, as risk appetite faded. In the past hour, as the US equity market has rallied into the close, the NZD/USD has recouped most of its overnight losses. The catalyst for the rally appears to be headlines coming out of a conference call between Greece and its potential aid donors, saying that “productive and substantive discussions took place”. The NZD currently trades around 0.8280.
Yesterday, the August Performance of Services Index (PSI) held up at a seasonally adjusted 53.9. This was a very solid outcome, in our view. This was reinforced by the fact the new orders component, at a hefty 58.7, kept leading from the front. The details of the PSI remained extremely mixed with the regional and industry breakdowns still bouncing around. However, the overall robustness of the survey’s results was its most striking feature.
Similarly, yesterday’s Westpac consumer confidence indicator for Q3 remained resilient at 112.0 (112.0 previously), even in the face of the current global ructions. However, the currency was taking its cue from global sentiment yesterday, gradually subsiding for most of the day, as Asian equity markets also declined. The NZD reached lows below 0.8180 early this morning, before a sharp rebound to 0.8280 currently.
The NZD made gains relative to both the EUR and GBP, that were weighed on by negative sentiment toward the Eurozone. The NZD/EUR trades around 0.6040 currently and the NZD/GBP around 0.5270.
The NZD/AUD has crept higher over the past 24-hours from 0.8000, to trade almost 0.8080 this morning. This sees the cross looking to retest the previous highs of 0.8120 seen in mid-August.
There are no NZ data releases today, but in the early hours of tomorrow morning we will get the results of the latest Fonterra milk auction. We expect the bi-monthly results to remain solid.
The USD once again gained against most of the major currencies over the past 24-hours. The exception was the JPY that benefited from its “safe haven” status, as risk appetite waned.
Yesterday was light on data releases globally, with currencies driven more by general sentiment toward recent developments in the European debt saga. Attention remains squarely on Greece. Doubts remain whether the Greek administration is doing sufficient on fiscal reforms to qualify for its next bailout tranche, due at the end of the month.
Our risk appetite indicator (scale 0 -100%) slipped from 33.0% to 30.7%. The Eurostox 50 declined 2.9%, led lower by the financials and cyclically leveraged sectors. The S&P500 was also down heavily but has rallied into the close to be down only 0.9% currently. The CRB global commodity index fell 1.8% and WTI oil declined 2.4%.
In this backdrop, the USD benefited from its perceived “safe haven” status. The USD index opened higher after the weekend, at 77.00, trading up to 77.50 early this morning, before returning to trade around 77.10 currently. The JPY was the only major currency to outperform the USD. The USD/JPY traded from around 76.90 to 76.50, close to its recent lows.
With current concerns focused on the Eurozone, the EUR/USD failed to make any headway overnight. It traded just below the 1.3700 level for most of the night to be down 0.75% over the past 24-hours. The GBP/USD also eased lower overnight from 1.5750 to 1.5700. It received little support from UK Rightmove house price data that showed prices increased 1.5%y/y in September, after declining 0.3% in the previous month.
The AUD/USD was one of the weakest performers in the past 24-hours, declining 1.20%, undermined by the general lack of risk appetite. The AUD/USD traded as low as 1.0170 overnight, trading around 1.0220 currently.
The release of the RBA board minutes for September will be important today. Tonight, we have the German ZEW survey as an indicator of business confidence, and US housing starts.
Fixed Interest Markets
It was a relatively quiet day in NZ interest rate markets. Swap and bond yields declined 4 to 5bps along the curve.
Over the weekend, the market was disappointed that no further policy actions were announced at the EU finance ministers meeting. Therefore, Asian equities declined over the day and NZ yields declined modestly. 2-year swap yields fell 5bps to 3.24%, back to the bottom of the range they have traded in since late March. 10-year swap yields declined by a similar magnitude to 4.55%, maintaining the 2s-10s spread around 131bps.
Positive outcomes on the NZ August PSI (53.9) and the Westpac consumer confidence survey (112.0) failed to offset the more cautious global sentiment. NZ bond yields similarly declined 4bps for 13s and 21s alike. At 4.43% the yield on 21s continues to bob along, above recent lows around 4.35%
Australian 10-year yields fell sharply again yesterday, from 4.24% to 4.15%. This has again increased the gap with NZ equivalents to -28bps, suggesting NZ long bonds will remain relatively attractive to global investors searching for yield.
Overnight, as global risk appetite once again faded, US 10-year yields declined from 2.02% to around 1.93%, not far from their lows of 1.88%. The yield on US 2-year bonds fell below 15bps, a record low, as investors continue to seek “safe haven” assets. This is despite the fact that at Wednesday’s US FOMC meeting the Fed is likely to announce plans to increase the duration of its government debt holdings. That could result in upward pressure on shorter-dated yields.
There are no NZ data releases today. Expect NZ yields to open under downward pressure given downshifts in off-shore yields overnight.
Mike Burowes and Kimberly Martin are part of the BNZ research team.