Market sentiment deteriorated again overnight, pushing the “risk sensitive” CAD, AUD and NZD lower relative to the USD

By Mike Burrrowes

NZD

Overnight the NZD came under pressure, along with its “risk sensitive” peers as risk aversion rose. (see Majors section). The NZD/USD declined from around 0.7570 to 0.7490 currently. The currency broke through a key support level at 0.7470, its early October low. It now trades at the lowest level since March.

The NZD showed little response to the encouraging signs in yesterday’s NZ credit card billings. These surged an even greater 2.6% in October, following September’s 1.3% gain. A lot of this reflects spending by tourists, undoubtedly related to the culmination of the Rugby World Cup in the month. However, it was interesting that billings on foreign-issued cards actually slowed to 1.1% in October, following their 17.3% boom in September, meaning it was Kiwi-issued cards that did the heavy lifting in October – up 2.8%, following -0.8% in September. The NZD paddled sideways most of yesterday before falling off overnight.

The NZD also lost ground relative to its European peers overnight, though gained relative to the AUD. The NZD/AUD made steady progress, rising from 0.7580 to 0.7600. Relative to the EUR, the NZD fell from around 0.5600 to 0.5540 currently.

Today’s RBNZ survey of 2-year-ahead inflation expectations will be closely watched. A decline from the Q3 reading of 2.9% is expected. A stubbornly high reading would be concerning for the RBNZ, as it keeps rates on hold at the historic low of 2.50%.

Majors

Market sentiment deteriorated again overnight, pushing the “risk sensitive” CAD, AUD and NZD lower relative to the USD. The USD index was a little stronger overnight, currently trading around 78.20.

Risk appetite fell overnight, with our indicator (scale 0-100%) falling back below 30%.The market was unsettled by developments on either side of the Atlantic. In Europe, Moody’s issues a warning on France’s sovereign rating. In the US, the ‘super committee’ appears on the brink of announcing failure in its deficit reduction negotiations. The Euro Stoxx 50 closed down 3.40%, and the S&P500 is currently down 2.30%.The CRB broad global commodity index fell 1.40%.

The USD and EUR finished the night, little changed. The end point however disguised some strong moves overnight. The EUR dipped from 1.3520 to 1.3440 early in the evening, before rebounding to 1.3520 currently.

Conversely, the USD stepped up to 78.50 last evening, with the initial fall in risk appetite and demand for the “safe haven” currency. Early this morning, the USD gave back some of its gains to trade around 78.20 currently.
The other perceived “safe haven” currencies JPY and CHF held their own relative to the USD over the past 24-hours. The EUR/CHF currently trades around 1.2370. This is some way above the 1.2000 level the Swiss National Bank has stated it will aggressively defend as a minimum for the currency pair. By contrast, the USD/JPY is back trading at 76.90. The currency has fallen steadily from the 79.50 that it spiked to as the Bank of Japan intervened at the end of October.

As risk appetite was on the back foot last night, the CAD, AUD and NZD fell out of favour. The AUD/USD was the weakest performer over the past 24-hours, declining 1.60%. It currently trades around 0.9850.
This evening, we get the second reading of Q3 GDP that is expected to stay at a respectable 2.5%y/y. We also get the US Richmond Fed Manufacturing index. The release of Eurozone consumer confidence data will importantly show the extent of the impact of the debt crisis. Tonight, we also get the FOMC minutes from the early Nov meeting.

Mike Burrowes is part of the BNZ research team. 

All its research is available here.