By Dan Bell
The NZD has been slammed overnight down 3% against the US Dollar as risk aversion grips the market following a big drop in US equity markets this morning. We open this morning around 0.8005/0.8025.
US stock markets are down by over 2.5%, commodity prices are off across the board- and the USD is stronger against most major currencies. The AUD/USD is trading around 1.0040, the EUR/USD is under 1.36- even Gold prices are off over 1% as investors cut positions across the market.
The US Federal Reserve announced a new strategy to stimulate the economy by pushing down long term interest rates. The total value of the operation is set at $400b and will involve the Fed selling short dated treasuries and reinvesting the proceeds in longer dated treasuries to bring long term yields down. The US Treasury market has reacted this morning with the yield on the US 10 Year dropping to a record low of 1.85%.
If the reaction of the market is anything to go by investors were disappointed with the Fed’s announcement this morning. Part of the negative reaction has been attributed to the Fed’s downbeat assessment of the global economy and the fact that ‘Operation Twist’ does not add new liquidity into the system the way Quantitative Easing did.
The NZD has been one of the worst performing currencies overnight and is lower against the major cross rates to open around current indicative levels- 0.7970 AUD, 0.5890 EUR, 0.5160 GBP, 61.40 JPY.
The market is extremely volatile this morning and we expect a continuation of this throughout the day.
At 10:45 NZ Q2 GDP is released with market expectations around +0.5% for the quarter.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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