News and views
Risk aversion increased significantly last night, the VIX now in bearish territory at 45, with weakness across most asset classes. Curiously, there was no event or data this could be attributed to, which suggests underlying sentiment is bearish, after an optimistic start earlier this year. The S&P500 index is down 2% at the New Zealand open, and the Eurozone index closed -2.5%. Most commodities fell significantly: NYMEX oil down 6% to US$38, copper -5%, gold -4%, and milk powder futures in Europe slipped for the fourth day in a row. US treasuries expected further economic weakness, falling 8bp in yield.
NZD had its third down-day, affected by both weaker commodities and a stronger USD. From 0.5880 at Europe’s open, it fell one cent quickly, and has established a temporary range of 0.5750 to 0.5850.
AUD was more harshly affected, falling from 0.6950 to 0.68, and rests in the 0.68 to 0.69 range. AUD/NZD touched a 1.1750 low, but buyers have shied away for now.
EUR had specific negative drivers to contend with: the possibility of S&P cutting Spain’s AAA credit rating, after Ireland and Greece were placed on negative-watch, and fresh forecasts of a 50bp rate cut this Thursday. However, the ranging price action, between 1.33 and 1.3450, suggests much was already priced in. JPY looks strong, its fourth solid daily gain in a row, to 89 against the USD.
No overnight data to report.
Outlook
NZD’s failure to reach 0.61 last week points to weakness being the prevailing tone this week. We expect 0.5660 to be reached during the next few sessions, but today’s range of 0.5750 to 0.5850 should hold, barring a surprise from this morning’s Q4 NZIER business opinion survey.
