ANZ Morning Focus: FXWW

From the FXWW Chatroom – OVERNIGHT NZDUSD 6478-6510 NZDAUD 9157-9179
TODAY NZDUSD 6465-6505 NZDAUD 9130-9180
– A tough day for equities (as well as risk assets/currencies) as the market grapples with tighter policy conditions as well as a confrontational speech from VP Pence directed at China
– US VP Pence remarked on the administration’s policy toward China, stating “China is meddling in America’s democracy” and accusing China of employing a “comprehensive and coordinated campaign” to undermine support for Trump US Vice President Pence Speech
– These accusations will do nothing positive for trade talks between China and US, we are yet to see any response from China or hear from Trump on the matter.
– Risk re-priced lower, European equities fell 0.3 -1.5% and major US bourses are 0.9-2.0% lower this morning with the NASDAQ under the most pressure.
– US yields pressed higher early in the European session, 10y TSYs reaching 3.23% before easing back to where we were this time yesterday, around 3.19%
– US Factory orders were up 2.3% m/m in August (mkt: 2.1%; last: -0.5% [initial: -0.8%]). Durable goods orders came in a tenth below their initial estimate at 4.4%.
– US BBG comfort index continued to climb the week ended 30 September, marking four consecutive weeks of gains. Gauge tracking views of economy advanced to a 17 year high of 65.6 from 64.6.
– ECB MNI published a report that the ECB may engineer a pseudo operation twist next year while deciding where to put re-investments of maturing bonds, citing unnamed ECB officials. More ANZ commentary below.
– The US Dollar is mixed, risk and commodity currencies (NZD, AUD, CAD) are lower, NZD making fresh lows since early 2016, while the JPY and to lesser extent EUR & GBP benefitted from safe-haven flows.
– Option Vols are having a large shift higher with the heightened risk situation and lower NZD spot, Kiwi 1 month Vol has moved from 7.5 to 8.7 vols in the last 24 hours.
– Ahead Today: Locally, it’s a quiet data day. Australian retail sales are out at 2:30pm. Non-Farm Payrolls will be of interest tonight, early reads (ADP etc) are pointing to a large number, market consensus 185K.
– NZD simply a victim of larger global risk and yield moves. Attempted a recovery above 65 cents, but sellers are prevalent in this climate. Note NZDGBPs well defined break below 50 cents which has in part helped a weaker NZD. With China-US tensions coming back to a boil, as well as the growing economic and yield inequality we expect to see sellers capping rallies for now, retaining the view that the descent will be orderly given positioning and pricing already in the market. Technical Fibbo support toward 6470 is the next line of defence, sellers will be evident back toward 6500-6510 resistance on the day.
ANZ-Morning-Focus-20181005.pdf
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