The Kiwi Dollar has rallied by 1% overnight despite a risk off tone returning to financial markets. Global stock markets have taken a dive, triggered by heavy losses on Wall Street and comments from President Trump describing US interest rate hikes as “crazy”. Despite the fall in risk appetite the NZD has been one of the best performing currencies and is up on all major cross rates. This is unusual activity for the Kiwi which usually runs into selling pressure in a big risk-off event. It looks as though an unwinding of short speculative positions has driven the NZD recovery.
The US Dollar was weaker overnight as traders unwound recent long positions. Also weighing on the USD was softer than expected inflation data released overnight which showed September CPI up by 0.1% after rising 0.2% in August. The market is still pricing in another US rate hike in December, however the softer inflation data supports the Fed’s gradual approach to raising rates.
Adding to the general risk-off tone in markets is the ongoing concerns over US-China trade wars. Last night US Treasury Secretary Steven Mnuchin warned China not to weaken its currency as the US and China try to resolve their trade differences. Mnuchin said his treasury department is closely watching the currency market and wants to talk about the issue with China as a part of trade discussions. Also adding to the uncertainty was comments from International Monetary Fund Managing Director Christine Lagarde who warned countries against engaging in trade and currency wars that hurt global growth and imperil “innocent bystanders”. Lagarde urged countries to “de-escalate” trade conflicts and fix global trading rules instead of abandoning them.
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