By Mike Jones*
The NZD was torn between competing influences last night.
While a souring in global risk appetite initially weighed on the NZD/USD, a slide in the USD later dragged the currency off its lows. “Growth-sensitive” currencies like the NZD and AUD have generally underperformed over the past 24 hours as a wealth of downbeat economic news shows the global recovery is losing momentum.
While Canadian retail sales failed to impress (0.1%m/m in June vs. 0.4% expected), US existing home sales were an absolute show stopper, plunging 27.2%m/m in July.
What’s more, policy makers from the Bank of England and Federal Reserve were forced to acknowledge the risk of a double-dip recession for the UK and US economies have probably increased.
Markets’ more pessimistic global outlook was reflected in a plunge in global equities and a clear souring in risk appetite.
Our risk appetite index (which has a scale of 0-100%) slipped from 50.5% to 48.2% last night. A more cautious attitude towards ‘risky’ assets briefly dragged NZD/USD to an overnight low of almost 0.7000. However, as US double-dip recession fears eventually won out, the USD was shunned and NZD/USD was pitched back above 0.7050.
With the USD falling out of favour, the JPY was the obvious alternative for investors’ seeking shelter in “safe-haven” currencies.
And Japanese officials’ seeming refusal to discuss JPY intervention probably further enhanced the JPY’s appeal overnight.
As a result, NZD/JPY tumbled form above 60.00 to 13-month lows of nearly 58.80.
With the local data calendar bare, the NZD will continue to take its cues from offshore attitudes towards ‘risky’ assets. Keep an eye on Asian equity markets today for further clues in this regard.
Near-term support on NZD/USD is seen on dips towards 0.7000, with heavy resistance around 0.7150.
After tracking higher initially, renewed concerns about a double-dip US recession took a heavy toll on the USD overnight. We suggested earlier in the week that US data would remain firmly in markets’ gaze, due to escalating concerns about a ‘double-dip’.
Last night’s US existing home sales data for July was in indeed in the spotlight, for all the wrong reasons.
Sales plunged a jaw-dropping 27.2%m/m, a 15-year low and more than twice the -13.4% drop expected. A marginally better-than-expected Richmond Fed survey (11 in August vs. 8 expected) provided little solace.
The more pessimistic mood wasn’t helped by comments from Chicago Fed President Evans, who said the risk of a double-dip recession has risen, although it is "not the most likely outcome."
After starting the night on the front foot, the USD dived in response to the renewed economic worries. From above 85.00, USD/JPY skidded to fresh 15-year lows below 84.00 and EUR/USD jumped from 1.2600 to almost 1.2700. Another weak attempt at talking down the JPY only added to the selling pressure on USD/JPY.
Japanese Finance Minister Noda said "It's clear that recent currency moves are one-sided” and repeated he is “watching markets closely”.
We suspect an explicit warning from Japanese authorities that intervention is likely is needed to halt the near-term slide in USD/JPY.
With the notable exception of the USD, “safe-haven” assets were in hot demand overnight reflecting investors’ renewed caution towards the global economy. US 10-year bond yields dived almost 10bps to 2.50%, with 10-year German Bunds and 10-year UK Gilts hitting fresh all-time lows of 2.18% and 2.87% respectively.
Against a backdrop of risking risk aversion, it was no surprise to see “safe-haven” currencies like the JPY and the CHF outperform last night as “growth-sensitive” assets were shunned.
The GBP was more resilient than most, despite the Bank of England’s newest MPC member Weale saying the BoE’s economic forecasts were too optimistic and the UK could yet slide back into recession.
The GBP/USD spent the night tracking a sideways 1.5370-1.5480 range.
* Mike Jones is part of the BNZ research team.