NZ dollar weak as risk appetites wane after Greek downgrade and Libyan turmoil
8th Mar 11, 9:46am
by
By Kymberly Martin
The NZD along with the AUD declined overnight, as risk appetite waned, and appetite for ‘commodity linked’ currencies was muted by a decline in the CRB commodity index.
The NZD/USD showed some volatility overnight, but finished the night around 0.7360, failing to break a near-term support level around 0.7330. While the CRB index declined slightly overnight, it still hovers up at levels last seen in September 2008, providing support for the currency, in the backdrop of diminished interest rate support.
New Zealand swap yields moved fractionally lower again yesterday, with the 2year yield slipping a further 4bp. One year swap yields have now declined 50bp and two year yields over 45bp since prior to the Christchurch earthquake.
The NZD/AUD also showed volatility overnight falling from 0.7280 to 0.7250 before a sharp ascent early this morning back above 0.7280.
Relative to the EUR, the NZD drifted slightly lower, from around 0.5280 to 0.5270. The EUR fell slightly versus the USD on the back of news that Moody’s had downgraded Greece’s credit rating by three notches.
With the GBP falling broadly overnight, the NZD/GBP rose slightly to 0.4550, appearing to find some support at levels that formed a base in August last year.
With the market now positioned for a rate cut from the RBNZ at Thursday’s meeting, any accompanying commentary that forces the market to reconsider its dovish longer-term view (the OCR is expected to remain below 3% until mid-2012), could see some support emerge for the NZD later in the week. In the meantime, we acknowledge the currency will likely be volatile.
Today we receive the NZ crown accounts, but all eyes remain on Thursday’s RBNZ Monetary Policy Statement, as the key driver of the NZD this week.
Majors
The USD ended the night largely where it had started after rebounding from a fall early in the evening. The weakest performing currencies overnight were the GBP and ‘commodity currencies’, AUD and NZD.
Risk appetite continues to decline, with our risk appetite index (that has a scale of 0-100%) falling to 61%, from close to 68% at the end of last week. Concerns regarding the price of oil continue to undermine markets as it rose further overnight, despite several Opec countries quietly joining Saudi Arabia in efforts to boost oil production, to offset a shortfall from Libya.
Gold, as a ‘safe haven’ asset reached a new intraday record high of US$1444/ ounce, and equities fell across the board, with the S&P500 currently down around 1%, with ‘cyclical’ sectors down almost 2%. The AUD/USD and NZD/USD declined overnight as sentiment toward cyclical and commodity related currencies waned. The CRB commodity index declined overnight, although remaining at historically elevated levels.
In the absence of economic data releases, the US dollar index fell early in the evening but finished the night close to where it began at 76.40. According to CFTC data, the speculative community increased its short USD positions to the highest value on record (in the week to March 1). This suggests that a large degree of bearish sentiment toward the USD had been built into the value of the currency, and the USD may find some support from here.
A sovereign downgrade was the key news from the Eurozone overnight with Moodys cutting Greece’s credit rating, three notches, from Ba1 to B1, due to increased default risk. The issue of restructuring Greece’s debt, perhaps before 2013, has been raised. This follows on the back of Fitch revising Spain’s outlook from stable to negative, late last week. The EUR rose early in the night before falling off below 1.3970.
In contrast to the speculative short position in the USD, the CFTC data shows the speculative community increased its net long position in the EUR over the period to March 1, suggesting some positive sentiment is now priced into the common currency.
The GBP/USD took out the prize of weakest performer overnight, displaying a similar pattern to the EUR, rising to 1.6320 before later falling off to 1.6200 this morning.
Today, look out for the release of German factory orders for an indication of how core Europe is performing, and the UK RICS house price data.
Mike Jones and Kymberly Martin are part of the BNZ research team.
All its research is available here.
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