Today NZDUSD 6850/6900 NZDAUD 9490/9530
· There is a sea of red across global markets with news that Canada arrested the CFO of Huawei raised Sino-US tensions to a new level driving risk off trading
· Shares across Europe having their worst day since Brexit in 2016 and declines across all indices in the US…Euro Stoxx -3.31%, FTSE -3.15%, DAX -3.50%, S&P -1.43%, Dow -1.61%
· Treasury yields are down 5-7bps across the curve, with US 10y down as much as 10bps at one stage
· The dollar rallied against commodity currencies and fell against JPY and CHF in typical risk off fashion
· Oil fell around 3% with Saudi’s oil minister noting he is not confident of an agreement tomorrow
· If there were any hawks left in Canada after the policy meeting yesterday, they should be shaken out by Poloz’s comments. He stated that downside risks have emerged to the economic forecasts. He added that the US-China trade war is a very significant risk and the move in oil has materially changed the outlook
o ISM non-manufacturing was 60.7 vs expectations of 59.0. It continues to track v close to the record high of 61.6 and November’s reading was the 2nd highest on record…of note Orders rose to 62.5 vs 61.5 signalling ongoing momentum ahead
o Nov ADP was a touch weaker than expected at 179k but still indicates strong momentum in labour market growth
· From Eco post the US data:
o There is absolutely no evidence in the report that the 200 bps of rate hikes so far is biting and stock market volatility has not adversely affected business conditions.
o For the fed therefore, the debate is about how much are tax cuts affecting demand, how long will growth stay elevated and what is the range for neutrality. The outcome is likely to be more of the same i.e. a vigilance to the data and gradual rate hikes.
· No major data out today
All things being equal, kiwi has again showed resilience in the face of a risk off environment and we open this morning around reasonable support from 0.6850-0.6870 (200hr & 200 day m.a). With little out locally today we will take our lead from the equity and rates markets and given the price action overnight expect any topside move to be well capped. For the time being expect we will wash around a broader 0.6790/0.6970 range
NZDAUD has touched fresh highs for the year as risk hits AUD harder and the hangover from GDP and the RBA lingers…strong support should be seen around 0.9450/60 (AUDNZD 1.0575) from here which represents the recent break of the 5yr trend channel.