Plunging NZD! Is it because of the volcanic eruptions on White Island, the tip of an undersea volcano about 50 km off New Zealand's main North Island? Again, hard to see any specific trigger for the move. The selling started yesterday at 0800 GMT, about the time trading starts up in Europe, and accelerated sharply right after noon – although the currency bounced back.
It’s unusual to see CHF at the top of my daily list of trade-weighted indices. The currency just isn’t that volatile nowadays. I’ve been trying to find some reason but it’s difficult to understand, which is to say that I have no idea. It doesn’t seem to be related to any specific news – Swiss unemployment and sight deposits out yesterday showed no particular reason for the currency to appreciate.
It’s a rare day when USD is the top performer. No need to dig deeply to find out why -- Friday’s nonfarm payrolls (NFP) were exceptional. Not only was the rise of 266k well above the consensus estimate (180k), it was even above the highest estimate (237k) in Bloomberg’s poll of 78 economists.
WTI and Brent crude oil prices jumped by 2% at $59.50 and $64.50 per barrel respectively at Friday afternoon trading session after the OPEC+ group decided to increase the production cuts at 1.7 mbd, while Saudi Arabia surprised the market with additional 400.000 voluntary cuts beyond what was agreed in the meeting, bringing the total cuts to 2.1 mbd.
The FX market was fairly quiet overnight ahead of today’s closely watched US nonfarm payrolls (see below). I’m not sure what caused NZD to rally so much, but my guess would be something having to do with China trade.
CAD soared after the Bank of Canada held rates steady, as expected, and turned more optimistic. The fears that BoC expressed in October about “the global slowdown spreading” have changed to “nascent evidence that the global economy is stabilizing.” At the same time, trade uncertainty remains the biggest risk to the BoC’s outlook and they will continue to monitor consumer spending and housing activity.
A roller-coaster ride for AUD! After rising yesterday on the Reserve Bank of Australia (RBA) shift to “wait and see,” this morning it plunged on a slightly worse-than-expected Q3 GDP report. Growth came in at +0.4% qoq instead of +0.5% qoq as expected, which doesn’t seem that bad to me, especially considering that Q2 was revised up to +0.6% from +0.5%. And the yoy rate accelerated slightly to +1.7% from +1.6%.
The Reserve Bank of Australia kept rates on hold, as was widely expected. I’m surprised to see how the AUD strengthened on the news even though no one thought they would cut. The key here must be that the RBA said that due to “the long and variable lags in the transmission of monetary policy,” it decided to hold rates steady “while it continues to monitor developments, including in the labour market.”
Both Crude Oil and Natural Gas assets experienced a different meaning of “Black Friday” last week as both the WTI and Brent oil contracts collapsed by -5% on concerns on US-China trade dispute and OPEC’s production cut deal while Natural Gas price crashed by -7% on warmer weather forecasts in United States.
Are we beginning to see economics returning to the FX market? Until recently it’s been pretty much a “risk on, risk off” market, dominated by a few trades when it looks like the US and China will solve their problems (buy AUD & NZD) or the dispute will worsen (buy JPY). But what I’ve noticed this week is that as new economic data comes in at variance with people’s expectations, currency values are readjusting to take into account the new information.
Friday’s market was really quiet. I mean, really, really quiet. One month implied EUR vol reached its lowest level ever at 3.9 vols, vs the previous low of 4.425 hit in June 2014. NZD was the big mover of the morning after Finance Minister Robertson announced plans to spend more on infrastructure. The size of the package will be announced in a budget policy statement on 11 December. The currency gained as bond yields rose, perhaps in anticipation of greater borrowing needs.
Really, really narrow trading ranges overnight. Don’t be fooled by the graph, which makes it look like GBP plunged; note instead that I had to increase the scale to two decimal places to get any change to show. The moves are barely worth talking about. GBP was the biggest mover, but that was probably just some profit-taking on the previous day’s rally.