NZD lower against majors; NZD/USD below 50-day moving average; NZD/JPY down 1%; investor nervousness stems from the current atmosphere of uncertainty

By Raiko Shareef

NZ Dollar

The NZD was caught up in a commodity-currency sell-off overnight, and sits 0.8% lower this morning at 0.7770.

As one would expect, NZD performed better than the oil-sensitive NOK. But it is not immediately clear why CAD and AUD, both more exposed to hard commodity prices, had better evenings.

The shunt lower has NZD/USD looking to close back below the 50-day moving average (currently 0.7790), which has mostly capped NZD’s closing price since mid-November.

On the crosses, NZD/JPY has fallen 1.0% in a risk negative environment to 91.90, while NZD/AUD continues to grind lower, currently maintaining station just above 0.95. A break of 0.9460 might portend a sharp move toward 0.90.

Once again, no local data releases today. We pick a 0.7720 – 0.7800 range for the day.

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Majors

It was another gloomy night for risk investors, with yet another plunge in the price of oil. In the absence of any significant economic data, there was nowhere else to look for inspiration. Equities and bond yields are lower, and the USD is higher.

The price of Brent crude oil below $50 per barrel on three separate days at the back end of last week, but each time managed to rally and close above that level. Yesterday, though, Brent opened $49.6 and never looked back. It currently sits at $47.7, nearly 5% lower for the day. WTI prices are 4% lower.

In the current stand-off between traditional oil producers (read: Saudi Arabia) and new shale oil producers (predominantly in the United States), the former seems increasingly resolved not to ‘blink’ first.

Over the past few weeks, there have been myriad comments from officials of the Saudi-led bloc within OPEC, scoffing the idea of any cut in production. A growing appreciation of that dynamic continues to force oil prices (and analyst forecasts) downward. One prominent investment house yesterday halved its six-month ahead forecast for Brent to $43.

For ours, we still view the fall in oil price a huge windfall for the global consumer. We think investor nervousness stems from the current atmosphere of uncertainty (especially on where oil prices bottom), more so than worries about plunging global growth.

Still, risk investors were not taking any chances, especially as they sit on the doorstep of the corporate earnings season. While the Euro Stoxx 50 managed to post a solid 1.4% gain, sentiment has since deteriorated, seeing the S&P 500 down by 0.8% at the time of writing. Alcoa will kick off the earnings season later this morning.

Predictably, NOK (-0.8%) and CAD (-0.6%) were among the worst performing G10 currencies overnight, while the safe-haven JPY (+0.3%) tops the leaderboard. Bond yields have drifted lower.

Separately, we note comments from Atlanta Fed President Lockhart, who said the Fed should be “cautious and conservative” on interest rate increases. Even so, he said the first hike would be “justified by the middle of 2015”. If mid-2015 counts as cautious and conservative, then even the recent hoopla on soft wages in the US seems unlikely to delay the Fed to where the market currently is pricing (a November lift-off). Lockhart sits mid-pack on the hawk-dove scale.

The data calendar cranks up a notch tonight, albeit from deathly quiet to simply hushed. China’s trade balance, US small business optimism, and UK inflation are due. The last is picked to fall to 0.7% y/y, which will force BoE Governor Carney to write a letter to the Government, explaining why he missed the Bank’s 2.0% inflation target by more than 1.0%. With deflationary headwinds blowing globally, the Chancellor is likely to forgive him.

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