China adjusts yuan down again; US suspicious of 'currency war'; US labour market strong; RBA warns on house prices; UST 10yr yield 2.09%; oil and gold higher; NZ$1 = 66.1 US¢, TWI-5 = 70.6

Here’s my summary of the key events over night that affect New Zealand, with news of another day of Chinese currency devaluation.

China’s currency fell to a four-year low against the US dollar yesterday, after a second day of deliberate policy devaluation. Further cuts are expected as Beijing tries to aid its exporters.

These are signs of panic as it is becoming clear the Chinese economy is slowing too fast for the liking of its policy makers. Against the Kiwi dollar however the move is very modest, only back to the level it was in June. But Americans are fearing a ‘currency war‘, suspicious of China’s motives and ability to control their economy.

Bets are now rising that the US Fed will hold fire on its interest rate hike in September because of the China uncertainties. And these China currency moves couldn’t come at a worse time for many other Asian economies.

In the US, the number of job openings fell slightly in June, though the overall level suggests demand for workers remains strong.

In Australia, the RBA noted overnight that Australians’ obsession with property won’t make their nation better off as a whole, and warned that the current sharp run-up in property prices is in effect a wealth transfer from the young to the old, something they don’t welcome either.

In New York, the UST 10yr yield benchmark continues to take its cues from the uncertainty over the China devaluations and is now down further to 2.09%. Our local 10yr swap rate is now at its lowest level in three years.

On Wall Street, stock market operators have noticed that the short term moving average for the Dow has now moved below its long term moving average – something known as a ‘death cross‘ because it is supposed to signal a new long-term downtrend. Equity markets are nervous.

The oil price has stopped falling however and is now back up to just under US$44/barrel, and Brent crude is now back to almost US$50/barrel. The IEA has noted that demand for oil is now growing at its fastest pace in five years.

And the gold price is again much higher on all this uncertainty, now up at US$1,123/oz.

And locally, ratings agency Fitch says that the low dairy prices are a headwind for New Zealand, but do not risk its sovereign credit rating.

The New Zealand dollar starts today a little higher having separated itself somewhat from the China devaluations, now at 66.1 US¢, at 89.8 AU¢, and at 59.2 euro cents. The TWI-5 is now at 70.6.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here »

Daily exchange rates

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for(i=0;i

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