NZD drifts lower despite bumper dairy auction. RBA decision a non-event. EUR a ley beneficiary of weaker greenback. Volatility rising

By Jason Wong

There’s been a lot of newsflow over the trading day and the net result is a weaker USD, down 0.5% on a TWI basis, giving up some of its October gains.

With so much information to digest it’s hard to pin down exactly why the USD is softer, but it’s been a one-way steady decline since early evening NZ time. 

Investors are likely reassessing their USD views, following its strength of during October (up about 3%) and thoughts of the “Shanghai Accord” have resurfaced again – this is the unwritten agreement amongst G7 central banks and finance ministers that a much stronger USD was not in the best interests of the global economy.  On top of that we’ve had mixed earnings reports in Europe and the US, solid China PMI data, a US ISM manufacturing indicator that positively surprised but also showed a chunky fall in new orders, and an ABC News/Washington Post poll that now gives Trump a 1% lead over Clinton in the Presidential race.

The risk-off mood sees the Swiss Franc up 1.4%, the VIX index up 17% to around 20 and European and US equities down circa 1%.

EUR has been a key beneficiary of the weaker USD tone, seeing it climb steadily up 0.7% to 1.1060, its highest level in a few weeks.  GBP has underperformed, being flat around 1.2235.

The NZD is at 0.7160, barely up 10 pips from yesterday morning’s sticky 0.7150 level.  It nudged up to a high of 0.7190 just before the release of the GDT dairy auction, but has drifted lower since, despite a bumper auction.  The average winning price rose by 11.4%, while whole milk powder surged by 19.8%.  Dairy futures pointed to a strong result, but this was still a much better than expected result and sets the scene for yet another upgrade to Fonterra’s projected payout should those gains be sustained.

The RBA’s Statement proved to be the non-event that most expected, with no change to its neutral policy outlook.  The AUD rose after the announcement, as a few punters expected a rate cut, but it has given up those gains and sits at 0.7650.  Despite the bumper GDT auction, NZD/AUD is down to 0.9360, with the post-RBA AUD strength dominating that cross.

USD/JPY is down to 104.20, a reflection of USD weakness.  As widely anticipated, the BoJ made no policy tweaks and caused little market reaction.  The BoJ delayed the projected timing of reaching its 2% inflation goal until sometime in the fiscal year beginning April 2018, now beyond the term of Governor Kuroda.

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