After our report went to print yesterday, OPEC agreed for the need to make oil production cuts. They proposed to cut their collective output to between 32.5m-33m barrels a day, down from August levels of 33.2m. However, the devil will be in the detail and plans for individual country production cuts will be deferred until its meeting in November.
Despite some scepticism about whether or not the cuts will actually happen, the announcement sent oil prices and commodity currencies higher. Brent crude rose to as high as $49.80 overnight compared to the circa $47.50 level before the announcement.
The NZD has traded in a fairly tight range. When we signed off this report yesterday, the NZD was sitting at 0.7250. It gradually rose to around 0.73 yesterday, but has met some resistance at that level and now trades down at 0.7240, a level it has oscillated around all week.
A risk-off tone developed just after 5:30 this morning when reports came through of some counterparties that deal with Deutsche Bank withdrawing some excess cash and positions held at the bank, a reflection of DB’s perceived credit risk. In US trading, the stock has plunged 7%. This has seen commodity currencies lose some ground and support for safe-haven currencies.
Thus, the AUD and CAD also haven’t managed to sustain the gains seen in the aftermath of the OPEC agreement and they are both down about 0.7-0.8% since the NY close at 10am yesterday. AUD/USD sits at 0.7630, leaving NZD/AUD at 0.95, a level we expect the cross to consolidate around for the rest of the year.
USD/JPY traded as high as 101.80 in the early hours this morning. Governor Haruhiko Kuroda gave a speech last night, reiterating that the central bank could cut benchmark interest rates or expand asset purchases further, a line he has been running with over recent weeks. But the risk-off tone has seen USD/JPY trade back below 101.
EUR/USD sits flat at 1.12, unwinding some earlier gains. Euro area economic confidence rose to its highest level since January, beating expectations, while annual Germany CPI inflation rose to a 16-month high of 0.5% y/y, boosted by rising oil prices.
Get our daily currency email by signing up here:
BNZ Markets research is available here.