Talking Points:
- Commodity Dollars Face Heavy Selling Pressure as Risk Appetite Unravels
- S&P 500 Futures Point Toward Continued Risk Aversion in the Cards Ahead
The New Zealand dollar underperformed in Asian trade following the RBNZ monetary policy announcement. While Governor Graeme Wheeler said that the bank expects “some further policy tightening will be necessary” in the future after the current wait-and-see period, he likewise issued a stern warning on the Kiwi. The central bank chief argued that the New Zealand unit’s current level is “unjustified and unsustainable” and projected a further “significant depreciation” down the road.
The Australian dollar spiked briefly higher after an impressive set of Employment figures. The report showed the economy added a net 121,000 jobs in August, dwarfing expectations for a 15,000 increase. The unemployment rate also declined more than analysts projected, sliding to 6.1 percent. The Aussie’s gains proved short-lived however, with the currency shedding most of its post-data gains within just a few hours. We interpreted the currency’s inability to meaningfully advance following strongly supportive data as reinforcing a bearish technical break traced out over the preceding 24 hours and entered short the AUD/USD.
Interestingly, the Canadian dollar followed its commodity-bloc counterparts lower. The move tracked an overnight slide in S&P 500 futures, pointing to broader risk aversion as the underlying force behind strong selling pressure in at the upper end of the yield spectrum in the G10 FX space. This core catalyst may explain why the Kiwi was so stung by seemingly familiar jaw-boning from the RBNZ as well as why the Aussie was unable to truly capitalize on impressive news-flow. More of the same seems likely ahead as contracts tracking the benchmark US equity indexes accelerate downward ahead of the opening bell on Wall Street.
