Markets coming to grips with PBoC moves; AUD and NZD rebound; some wavering in expectations of US rate hikes

By Kymberly Martin

The USD has weakened against most peers over the past 24-hours. The NZD/USD has been amongst the outperformers, trading at 0.6620 this morning.

It was a fairly active and jittery night for markets as it attempts to come with terms with what the PBOC’s recent chance to its currency fixing regime really means.

Equities experienced harsh falls in Asia and Europe as our global risk appetite index (scale 0-100%) has dipped further, to 54%, from 63% at the start of the week.

However, US equities are currently grappling their way back toward flat and the oil price has enjoyed a modest rebound.

This has assisted the “oil-linked” NOK in being the strongest performer over the past 24-hours. It has gained 1.6% against the USD.

Yesterday afternoon, the USD/CNY opened 1.4% higher, as the PBOC implemented its new policy of more closely aligning the onshore CNY with trading in the offshore CNH.

The AUD, NZD and many Asian currencies gapped lower on the move.

However, as the night drew on, and the USD/CNH drifted lower, the AUD and NZD rebounded.

From early afternoon lows below 0.6470 (its lowest level since July 2009) the NZD/USD has returned to trade at 0.6620. The NZD has also rebounded on most of the crosses.

Overnight, the RBA’s Deputy Governor, Lowe, aired both sides of the debate around recent PBOC policy changes.

He said if the Yuan move reflects genuine reform in China then it is ultimately good news. It would also be good for AU if the move supports AU’s largest trading partner.

But he was also wary of the other interpretation, that the change in policy reflects that “growth momentum in China is a bit weaker than the authorities had expected.”

It may be some time before the debate is resolved. In the meantime, the AUD/USD sits a little higher this morning, at 0.7380.

The EUR/USD benefitted at the hands of a broadly weaker USD overnight. The market appears to be showing some wavering in its expectation for imminent Fed rate hikes.

The EUR/USD strengthened despite disappointing EZ June industrial production data. The EUR/USD trades at 1.1170 this morning.

The GBP/USD experienced some bumpy trading overnight. It initially gapped lower as UK data showed average weekly earnings dipped below expectation, to 2.4% in June.

However, it later grappled its way back to trade at 1.5610 this morning.

Whilst commentary on China will likely continue to capture market attention, the data focus tonight will be US July retail sales data.

Both the USD and US yields will likely be responsive to any signs of strength, given recent paring of expectations for US Fed rate hikes.


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Kymberly Martin is on the BNZ Research team. All its research is available here.

Daily exchange rates

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