By Kymberly Martin
Markets are a little calmer at the start of the week, though some volatility in currencies remains.
The AUD has outperformed while the NOK continues to suffer under the weight of a weak oil price.
The WTI oil price declined a further 6.0% overnight, to its lowest level since December 2008. Its fall weighed on the energy sector within the S&P500, but otherwise the early year plunge in the equity index appears to be losing momentum. It is down ‘just’ 0.5% at present, while the Euro Stoxx50 closed down only 0.2%. Credit spreads also appear to be stabilising.
In a data-light evening, comments by the chief economist at the People’s Bank of China’s Research Bureau gained attention. He emphasised the CNY will be more tied to a basket of currencies rather than the USD.
The PBoC would "appropriately limit" daily USD/CNY volatility. He also said that; "Establishing a relatively transparent, credible basket currency regime will help stabilise market expectations... though the yuan will not be strictly pegged to a currency basket."
Yesterday’s USD/CNY reference rate was once again set lower than the previous day’s fix (-10bps).
The fixing sends a clear message to markets that authorities want the FX rate to stabilise and not to be seen as a one way bet. But it might serve to undermine the authorities' credibility in terms of its espoused willingness to let the RMB be more market-determined. This in turn could add more confusion, maintaining market volatility in coming days.
The AUD/USD spiked higher at the time of the fix yesterday afternoon, before a more enduring uptrend took hold in the evening. It touched highs above 0.7030 early this morning, before slipping a little, to 0.6980 currently.
The NZD/USD also followed along in the AUD’s slip-stream, assisted by the stabilisation in risk appetite overnight (albeit at low levels). Our global risk appetite index remains at a tentative 25%.
The NZD/USD found support around the 0.6510 level early yesterday afternoon, before rebounding to trade at 0.6540 currently, with intra-night highs not far from 0.6580. Support continues to be eyed at the mid-Nov lows of 0.6430. Near-term resistance will likely be encountered on a move back toward the 100-day moving average close to 0.6590.
On the crosses, the NZD has rebounded versus the EUR and JPY. The JPY has experienced particularly volatile trading in recent days as it is used as a risk appetite proxy. Since the start of the week the USD/JPY has traded a fairly wide range between 116.70 and 118.00. It currently trades around 117.30. The NZD/JPY has recovered to 76.80, from yesterday’s lows near 76.10.
In the near-tem the JPY will likely continue to be whipped around by global risk sentiment rather than fundamentals.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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