Both the New Zealand and Australian Dollars briefly fell to 11 year lows yesterday as a collapse in oil prices, combined with a falling stock market and ongoing coronavirus fears sent investors flocking to safer assets. Oil prices fell suddenly by 30% yesterday afternoon sending markets into panic mode. Safe haven currencies JPY and CHF both surged on the panic with the Yen touching on a 3 year high. Overnight we have seen something of a bounce back for the NZD and AUD, with the Kiwi currently sitting around the same as yesterdays opening levels. However, volatility is expected to continue, with oil prices still down by as much as 25%, and coronavirus warnings still coming through thick and fast.
Flash Crash Sees NZD Fall By 3 Cents
As mentioned, the NZD is back to yesterdays opening levels, which is quite an achievement after briefly plunging as low as 0.6014. A fall of 3 cents in just a few minutes sent markets into panic. The heavy fall in both the NZD and AUD appeared to be sparked by movement in the Japanese Yen, which rose quickly against the US Dollar, igniting rapid movements across global fx markets. The NZD/JPY cross rate was down by as much as 8% yesterday but has recovered to be only down 3% from yesterday’s open. On the cross rates, the NZD has made good gains against fellow commodity currencies, the AUD and CAD.
Oil Prices Collapse
Oil prices suffered their worst collapse since the 1991 Gulf War as Saudi Arabia has signalled an all-out price war after production limit negotiations collapsed. With Saudi Arabia, Russia, and other major oil producers set to flood the market with supply, oil prices could have more room to fall if this turns into a long-term dispute. This supply shock is in addition to the demand shock from the coronavirus impacts on the world. Adding to the market turmoil yesterday was a plummeting stock market. US stocks are down by 7% overnight, which triggered an automatic 15 minute trading halt at one stage.
The Day Ahead
All about coronavirus, oil prices, and managing the fallout from yesterday’s market carnage. This afternoon, RBNZ Governor Orr will be releasing a speech on the bank’s potential use of unconventional monetary policy tools. However, the speech is not expected to discuss current economic conditions or the OCR.
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