The New Zealand dollar was little changed as traders weighed up the impact of weaker Chinese trade figures on the Australasian economies and whether US jobs growth was strong enough to warrant an interest rate hike by the Federal Reserve next month.
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This should come as little surprise given that emerging markets are experiencing a nearly-unprecedented growth slump relative to developed markets, and as several sectors are facing robust commodity supply growth. Currencies of commodity-producing nations pared losses.
The dollar hit a two-month high of 125.07 yen JPY= on Friday, and was last up 0.5 percent at 124.75, buoyed by elevated two-year U.S. Treasury yields US2YT=RR.
That’s driven down both some commodities and real exchange rates to levels not seen since before the super cycle. “The market is saying: look, maybe we’re too one-way”, he added, in reference to traders paring one-way bullish bets on the dollar. “The Aussie is trading lower on the back of the release and in our view there is further scope for weakness especially versus the U.S. dollar and the New Zealand dollar”.
“We probably need to see how it settles overnight”.
Fed vice-chairman Stanley Fischer said on Monday that stubbornly low inflation – a cause of concern for policy makers – will not persist with the economy at nearly full employment.
Traders are pricing in a 52 per cent probability that the Fed will raise interest rates in September, based on the assumption that the effective fed funds rate will average 0.375 per cent after the first increase.
The New Zealand dollar slipped to 89.17 Australian cents from 89.29 cents yesterday ahead of a report on Australian business confidence.
“Everyone’s getting caught up in the top-line negative numbers that we saw” out of China, Mazen Issa, senior foreign-exchange strategist at Toronto Dominion Bank, said. A short is a bet a currency will weaken. The labour report, released Friday in the US, showed the world’s largest economy added 215,000 jobs in July, just missing expectations for a 225,000 gain.
Oil prices ended a three-day losing streak as traders bought the commodity, thinking its price could not get any lower. This has weighed on commodity currencies.
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While analysts noted that July U.S. retail sales data, due Thursday, would be closely watched for implications for the timing of a Fed hike, they said optimism about the global economy dominated trading on Monday, overshadowing Fed speculation.
