The Yen and Swiss franc top the leaderboard for the second day running, as last week’s rally in risk appetite continues to unwind.
It seems that oil prices continue to influence other financial markets, with their decline and recovery a key driver of equity market and currency gyrations.
Oil prices continued to decline as Saudi Arabia’s oil Minister al-Naimi ruled out coordinated production cuts across OPEC and non-OPEC nations, indicating that “inefficient, uneconomic producers will have to get out”. He added “We can co-exist with $20. We don’t want to, but if we have to, we will”.
However, oil prices then recovered as data showed US fuel inventories declined. WTI fell to a low of $30.56 before recovering to trade at $32.20.
The S&P500 fell by 1.4% in early trading but is now down by 0.8%. Much of the recovery occurred after the European close, with the Euro Stoxx 600 index down 2.3%.
Adding to the risk-off tone, US Treasury Secretary Jack Lew downplayed expectations for any emergency response out of this weekend’s G20 meeting saying “don’t expect a crisis response in a non-crisis environment”. It seems that the best the market can hope for is some strengthening of the pledge from countries not to engage in competitive currency devaluations. Yawn.
Weak economic data also played a role in the risk-off tone, with the Markit PMI services index falling sharply in February to 49.8, the second lowest reading since data began in 2009. The USD took a dive after the release of this report, erasing earlier gains. Adding to the USD decline, new home sales fell by more than expected, down 9.2% m/m in January.
The Yen is up 0.7%, taking USD/JPY down to 111.40, after earlier almost breaching the 111 mark.
The big story remains the relentless selling of GBP, since Boris Johnson announced he’d be supporting the Vote Leave camp in the June referendum on Britain’s EU membership.
GBP/USD is down 0.6% to 1.3935, after earlier reaching a 7-year low of 1.3879. The cumulative fall since the end of last week is now around 3.3% and most analysts believe that further downside is inevitable.
A Bloomberg survey showed the most likely scenario being a move to 1.25-1.30 in the event of Brexit, with the next favoured grouping showing a sub-1.20 handle. The 1.20 level would represent a circa 16% drop from last week’s close.
EUR/USD is flat at 1.1025. Like yesterday, in the risk-off environment the EUR would normally have risen, but it continues to see some spillover from GBP selling.
The NZD tracked lower through much of yesterday’s local trading session, with oil futures declining throughout the day. NZD/USD dipped just below the 0.6590 mark early this morning, but the rebound in oil prices has provided a little boost, and it now sits at 0.6630.
The AUD followed a similar path. NZD/AUD fell below 0.92 yesterday afternoon but the NZD has outperformed overnight, and the cross has recovered to 0.9235.
For fans of technical trading, both NZD/USD and AUD/USD trade close to their (falling) 200-day moving averages, and these have provided some resistance.
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