By Kymberly Martin
There were sizable moves in markets despite only limited data delivery overnight.
The US strengthened against all its peers except the JPY.
Overnight, our risk appetite index (scale 0-100%) fell to 50%, as equities declined on either side of the Atlantic, led by cyclical sectors in the US. The UK FTSE declined 2.5%, led by commodity sectors as the WTI oil price fell 2.8% and the global CRB commodity index fell 1.3%.
The EUR was on the back foot from early in the evening as German bond yields fell. Sentiment toward the common currency was not helped by very soft Italian industrial production data. The EUR/USD has fallen from early evening highs around 1.0820 to trade at 1.0720.
Meanwhile the USD was on a steady ascent. Trading at its highest level since September 2003, its strength may be contributing to the softer equity market, as concerns for US earnings reverberate. The USD index trades at 98.50 this morning.
The weakest performing currency overnight was the NOK which has lost 2.1% versus the USD over the past 24-hours. The currency was weighed down by the lower oil price and a Norwegian CPI release that came in at just 1.9%y/y (2.1% exp.). The USD/NOK trades at 8.1000 this morning, its highest level since mid-2002.
Overnight, the USD/JPY failed to convincingly break through resistance at its early-Dec highs. While it briefly traded above 122.00 it has returned to trade at 121.10. However, as the US Fed moves steadily towards less accommodative policy we believe it will only be a matter of time before the USD/JPY breaks higher.
The AUD/USD was equally a victim of USD strength overnight, also likely not helped by generally lower commodity prices. Yesterday’s AU NAB business survey also showed the RBA’s 25bps cut in Feb did not appear to have the desired effect on firms “animal spirits”. Confidence actually deteriorated in the month. The AUD/USD dipped toward 0.7600 overnight, its lowest level since mid-2009, but has subsequently returned to trade at 0.7630. The market will be looking out for a scheduled speech by RBA’s Kent today. Also keep an eye out for China data releases late this afternoon (NZT).
NZD/USD has been on a relatively steady descent for much of the past 24-hours. A combination of USD strength and market expectation for RBNZ cuts appears to be weighing on the currency.
The NZD/USD also suffered some volatility yesterday afternoon after police reported a threat to contaminate NZ infant formula. However, fears appeared to soon be calmed. The NZD/USD has found support at 0.7260 overnight, currently trading around 0.7270.
On the crosses, the most notable moves were for the NZD/JY and NZD/GBP. The JPY outperformed all its peers overnight, taking the NZD/JY back below 88.00. The NZD/GBP has fallen back to 0.4820, although a strong band of support lies near 0.4800.
The market will now have all eyes on tomorrow morning’s RBNZ meeting. We do not believe the RBNZ will wish to fuel rate cut expectations, however we do think it will significantly flatten its published 90-day bank bill track.
This in itself, along with the usual talk of “unjustified” and “unsustainable” NZD strength, could be enough to encourage current negative momentum in the NZD.
Key NZD/USD support lies at the early-Feb lows of 0.7180.
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