North Korea fired a missile towards Japan yesterday, which soured risk sentiment; risk sentiment recovered later in day as markets speculated that tensions will not escalate; NZD followed the global risk sentiment moves to trade at 0.7250 USD this morning

By Doug Steel

Shortly after we pushed the send button yesterday, news broke that North Korea had fired a missile toward Japan. Any prior thoughts of a quiet session disappeared as risk sentiment soured. This saw equities drop, safe havens like the JPY, CHF, and gold higher, while commodity currencies like the AUD and NZD were sold.

Japan called the latest provocation an ‘unprecedented, grave and serious threat’ and asked the UN Security Council to hold an emergency meeting. US President Trump said the US will consider ‘all options’ having earlier discussed the issue with Japanese Prime Minister Abe.

Overnight, sentiment has recovered somewhat as the market speculates tension will not escalate further, bringing some reversal of earlier moves.

US equities are currently marginally higher, after futures markets had previously been down as much as 0.9%. Asian equity markets closed mostly lower yesterday, while the EuroStoxx50 closed down nearly 1%.

Having dipped below 108.30, USD/JPY has fully recovered its post-missile losses to currently sit around 109.80, to be up 0.5%.

EUR pushed as high as 1.2070 overnight after breaking resistance at 1.20 and as the USD was under pressure. Another strong EU consumer confidence reading doing the single currency no harm. But as the USD recovered, supported by a strong consumer confidence reading in the US itself, EUR has drifted back below the 1.20 mark currently sitting around 1.1980.

The DXY US dollar index is little changed at 92.3, with North Korean tensions and the impact from Hurricane Harvey providing no reason for the US dollar to bounce. Estimates for damages caused by the hurricane are varied but climbing, with some as high as $US100b, as the storm recharged in the Gulf of Mexico and unleashed yet more catastrophic rain in Houston and South Eastern Texan.

AUD/USD reversed yesterday’s losses overnight as risk sentiment recovered. After falling below 0.7910, AUD/USD rose to over 0.7980, before settling around 0.7960 currently. NZD/USD followed a similar trajectory washing around with risk sentiment and USD moves, dipping to around 0.7220 shortly after the local close, rising toward 0.7300 overnight, before easing back to around 0.7250 currently. Risk sentiment is likely to remain in the driving seat for now. NZD/JPY has lifted from a low around 78.3 yesterday to sit just above 79.6 currently. NZD/AUD is little changed at around 0.9120.

The NZD saw a mild dip yesterday as the NZ Government confirmed 3 more farms with the Mycoplasma Bovis cattle disease, taking the total to 6. More cases are expected as testing continues. But the market brushed it off as encouragingly there is no evidence of disease spread other than by close animal contact.

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