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Westpac Global Markets Strategy Group: Morning FX Thoughts - NZ Edition

Fuseworks Media
Fuseworks Media
Westpac Global Markets Strategy Group: Morning FX Thoughts - NZ Edition

Sovereign credit fears again dominated the world's markets, civil unrest in Greece effectively closing the country and raising doubts about promised austerity measures.

Contagion fears were further raised after Portugal's Aa2 credit rating by Moody's was placed on review for a possible downgrade within three months, the recent deterioration in public finances and increased financing costs cited.

The 10yr government bonds of Greece, Portugal and Ireland rose 78bp, 34bp, and 28bp respectively, while Germany and Switzerland's fell 9bp and 10bp. Equities were weaker in most markets, the Eurostoxx50 down 1.4% and the S&P500 down 0.8% currently. The VIX measure of risk aversion continued the previous day's spike higher.

Commodities (CRB) fell 1.3% overall, oil hard hit (3.7%), while gold did its job, up 0.4%. The European issues prompted further flight to the safety of US treasuries, shedding yields in the 2yr by 6bp and the 10yr by 5bp.

The US dollar index benefited from the heightened risk aversion, making a fresh 12-mth high of 84.31. The EUR did the inverse, making a 1.2804 low. Norway's central bank raised its rate by 25bp as expected, only briefly containing NOK weakness.

The yen outperformed all, moving from 95.00 to 93.60 against the dollar. AUD fell from just above 0.9100 to 0.9021, recovering slightly to 0.9055 currently. NZD fell from around 0.7200 to 0.7143, and sits at 0.7165. AUD/NZD consolidated slightly higher between 1.2620 and 1.2670.

Outlook today: AUD's expected range is within 0.9000 and 0.9130, retail sales of interest today. NZD has fallen back inside its multi-month channel, and should remain inside 0.7100 to 0.7200, unless today's employment report surprises.

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