NEWS / Foreign Exchange

Risk aversion sees USD/JPY heavy

Sharp decline in US equity market spooks NZD

The NZD fell to a one-month low against the USD on Friday morning as investors rushed to dump riskier assets following sharp declines in the US share market. The dip provided good buying opportunities and by mid afternoon the NZD had clawed its way back toward the 0.7300 level. Overnight the currency pair moved higher to post a session high of 0.7346 after the USD softened on the back of weak retail sales. Also helping the NZD was a recovery in US equity markets and a return to risk. NZD/JPY was the biggest benefactor climbing from just under 87.00 to 88.00 where it opens this morning.

AUD recovers as risk aversion subsides

The AUD opened around 0.8265 on Friday and triggered stops en route to a 0.8230 low as risk aversion crept back into the market. By afternoon the AUD was back to 0.8285 as regional equities registered losses smaller than Wall Street??™s. With an appetite for risk returning to the market the AUD recovered sufficiently overnight to finish the session above 0.8300.

Risk aversion sees USD/JPY heavy

Following Thursday night??™s swing towards risk aversion, the local market opened Friday morning and followed the same theme. USD/JPY and JPY crosses felt heavy early on as carry trades continued to be liquidated. However USD/JPY found firm support at 119.70 and the currency crept back towards 120.00. The euro traded a lacklustre 26 point range during our day and was unable to extend towards 1.3500. Offshore trading was relatively quiet with softer US data taking the broad USD lower against the majors. EUR/USD spiked to a high of 1.3532 on the back of this. A resurgence of risk appetite saw USD/JPY higher to close towards 120.30.

US retail sales slip 0.2% in April. Retail sales posted their first fall since September last year, although that followed a substantially upwardly revised Mar. The detail suggests that the weather ??“ which boosted sales in March ??“ may once again have been a factor, but this time to the downside for weather-sensitive sectors. But there was softness elsewhere too, with department store and general merchandise sales both falling 1-2%. Auto sales were soft as well. So it may also be the case that the ongoing rise in gasoline prices is starting to impact on discretionary spending.

US business inventories down 0.1% in March. Stocks posted a rare fall (their first in nearly two years), led by a 0.7% fall in retail stocks offsetting modest gains at wholesalers and factories. Also February was revised down a tick. This was probably an involuntary inventory rundown, as retailers were caught out by the strength of sales in Mar. Regardless, this is more bad news for the first revision of Q1 GDP growth (due 31/5), originally reported at 1.3% annualised. When we feed in imports and inventories numbers for Mar, we see GDP growth revised down to just 0.5% annualised. It would have been closer to zero if it were not for a likely upward revision to Q1 consumer spending, thanks to the retail sales revisions to March. Still, with imports and stocks dragging on growth in Q1, there is a good chance there will be a bounceback in Q2.

US PPI rose 0.7% in Apr, due to energy prices posting another 3+% gain and food price inflation slowing from 1-2% in each of the prior four months to 0.4% in April. But the core PPI was held to flat for the second month running by further weakness in auto and light truck prices.

Canadian jobs down 7k in April. After seven months of very strong jobs growth, averaging 44k per month, employment eased 5k in April, leaving the jobless rate at 6.1%. The detail showed that stronger government and self employment offset a 31k decline in private sector hiring. Also, full time jobs were down 15k. So the April detail might be soft enough to shave the edge off late April??™s slightly more hawkish Bank of Canada statement.