8 week low for NZD

The NZD has been the weakest performing currency over the past 24 hours. From above 0.7050 this time yesterday, NZD/USD tumbled to 8-week lows below 0.6970 overnight.

NZD

The NZD’s woes began with yesterday’s news South Canterbury Finance (NZ’s second largest finance company with assets of around $1.9b) had filed for receivership. The knee-jerk reaction to the news saw NZD/USD drop around ½ cent to 0.7020 and NZD/AUD dive below 0.7900, says BNZ’s Mike Jones in today’s FX Wrap.

South Canterbury’s announcement, combined with the generally uninspiring tone of recent local data (with the August NBNZ business survey and yesterday’s July building permits figures the latest examples), also saw markets further reduce the chances of a September RBNZ rate rise.

The odds of a 25bps hike were pared to just 10% from 25% at the start of the week, providing an additional weight on the NZD yesterday. Speculative and leveraged-type players increased NZD/AUD short positions, dragging the currency below 0.7850 for the first time in four months.

There was no respite for the NZD overnight. Generally subdued risk appetite ensured “growth-sensitive” currencies like the NZD, AUD, and CAD remained on the back foot.

The August FOMC minutes only reinforced US economic worries and downbeat sentiment continued to pervade equity and commodity markets (oil prices plunged almost 4% overnight).

As investors sought out the relative “safe-haven” of currencies like JPY, CHF and the USD, the NZD/USD was eventually pushed below 0.6980.

With ‘fundamental’ support for the NZD fading, we have been looking for the NZD/USD to drift lower and last night’s break below the 0.7000 support level means a test of 0.6850 is looking increasingly likely. However, in the near-term, whether or not recent NZD losses will be sustained will depend on the strength of upcoming data. 

In this regard, this afternoon’s ANZ commodity price index and tonight’s Fonterra online milk price auction will be worth keeping an eye on, as will Australian Q2 GDP figures (1:30pm) and the Chinese PMI for August (1:00pm).

Majors

With investors’ risk appetite still subdued, “safe-haven” currencies like JPY, CHF and the USD continued to strengthen overnight.

A dour day in Asian stock markets yesterday set the mood; all the major Asian equity indices slipped into the red. Most notably, the Nikkei slumped 3.6% to a fresh 16-month low as investors continued to express their disappointment with Japanese policy makers’ failure to halt the JPY’s advance.

Investors are also wary of more disappointment from the slew of top-tier (mostly US) data due out later this week. Lingering global growth fears underpinned simmering demand for “safe-haven” currencies overnight.

USD/CHF slid to 8-month lows of nearly 1.0140, EUR/CHF hit fresh all-time lows below 1.2900 and USD/JPY spent most of the night flirting with recent lows around 84.00. 

Once again, Japanese authorities were quick to chastise further gains in the JPY. Deputy finance minister Ikeda said "we undoubtedly won't rule out using our authority" to respond to the stronger JPY, and suggested any intervention from the Bank of Japan should be un-sterilised (a form of monetary easing).

Deteriorating sentiment towards the global economy also took a toll on commodity prices. Oil prices tumbled nearly 4% to below US$72/barrel, helping drag the broader CRB commodity price index down around 1.3% last night. ‘Commodity-linked’ currencies like AUD, CAD and NZD all suffered as a result.

Weaker than expected Canadian GDP figures (2.0% annualised vs. 2.5% expected) provided an additional weight on the CAD. USD/CAD climbed back to the top end of its recent 1.0150-1.0670 range.

Later in the night, some comforting US data help allay concerns about a US ‘double-dip’. Accordingly, risk aversion faded somewhat. August consumer confidence edged up to 53.5 (50.7 expected) and the S&P/Case-Shiller home price index ground out a 0.28% gain (0.20% expected).

Still, the data wasn’t enough to evoke any gains in US stocks, despite a positive lead from European equities. The S&P500 and Dow Jones indices both ended the night around flat.

Looking ahead, there is potential for increased volatility in currency markets over the next few days with an onslaught of global economic reports due to hit markets. First up tonight, August Eurozone PMIs and the US ISM index will provide an update on the health of the global manufacturing sector (the Chinese PMI is due out this afternoon). Initial support on the USD index is eyed towards 82.80 with resistance at 83.60.

Courtesy BNZ.

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