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Eyes on Fonterra; European and China moves all undermine risk, Yen strongest gainer on the day

Currencies
Eyes on Fonterra; European and China moves all undermine risk, Yen strongest gainer on the day

By Kymberly Martin

NZ Dollar

The NZD has strengthened along with all of its peers, relative to a weak USD overnight. The NZD/USD trades at 0.7720 this morning.

The NZD was a beneficiary of broad USD weakness overnight.

The USD index now sits below where it traded prior to Friday night’s payrolls-inspired surge.

The NZD/USD rebounded from early-evening lows around 0.7610 and trades around 0.7720 currently.

All eyes are now on the Fonterra announcement of its latest 2014/2015 payout forecast, due at 8.30am.

As we noted yesterday, downward revision to its previous NZ$5.30 forecast is widely expected, so a number in the high NZ$4s will probably not be a negative shock for the NZD.

However, we suspect a number in the low NZ$4s would. An unchanged forecast would clearly be a positive surprise.

On the crosses there was a notable further decline in the NZD/JPY overnight, in the backdrop of a strong JPY. The NZD/JPY now trades at 92.00 having dipped toward 91.40 overnight.

After today’s Fonterra announcement it will be all eyes on tomorrow morning’s RBNZ meeting (see Fixed Interest). Near-term we see support for the NZD/USD at the overnight lows around 0.7610. Resistance is eyed at 0.7780.

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Majors

In a reversal of recent fortunes, it was a strong night for commodities and a poor night for equities and the USD. The JPY was the strongest performer.

It was a night for ‘safe haven’ assets of all type as risk sentiment soured. Our global risk appetite index (scale 0-100%) has slipped to 55% from 70% at the end of last week. In a fairly data-light night, two key events appear to have contributed to the negative mood. First, Greece’s Prime Minister Samaras brought forward a parliamentary vote. A loss of the vote could lead to parliamentary elections with the prospect of a win by anti-austerity party Syriza. Greek bond yields surged as the equity market fell 13%.

In addition, China announced further policy measures, including curbs on excess opaque local-government debt. Bonds rated below AAA, or sold by issuers graded lower than AA can no longer be used as collateral in repo agreements.

Amongst currencies, the ‘safe haven’ JPY was the key beneficiary of this backdrop. The USD/JPY fell from 121.00 to overnight lows below 118.00. It has returned to trade at 119.30 currently as the USD made an early morning recovery.

After falling most of the night, the USD bounced this morning after the release of the October US JOLTS report on job openings (4834 vs. 4795 expected). From intra-night lows around 88.20 the USD index now sits at 88.60. Still, the USD has given up all of its post-payrolls gain.

Other currencies have also strengthened against the USD. Gains in the GBP were limited by disappointing October UK industrial production data (-0.1%m/m vs. 0.2% expected). The GBP/USD sits at 1.5670 currently.

Today, the AU Westpac Consumer Confidence index will be released. Japanese Confidence data is also due. UK trade data will be released this evening.

Daily exchange rates

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Source: CoinDesk

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