Risk aversion reigns supreme in markets

24 August, 2017

Markets continue to be risk off today, as commodity currencies took a beating - no more so than the NZD. Recently markets had been piling into fixed interest rate currencies as economic optimism boomed, however that has recently turned as Trumps allure has worn off, and the markets remain more cautious than ever.  The Reserve Bank of New Zealand has not helped as they attempted to jawbone the NZDUSD last week as well; this is not really much of a surprise though anymore as the governor tends to every chance he gets. However, it's not all doom and gloom for the pair with trading balance data due out shortly and markets expecting to see -200M (NZD) as a reading, which will certainly be negative compared to the previous surplus. A fall here would be bearish signal, however trade balance data has shown in recent times to be quite resilient and could easily surprise the markets here as well. Exports will also be a key focus for traders, as a jump here would also boost the case for a stronger NZD.

So far the NZDUSD has had a very rough day with a sharp fall on today's attack on anything risky. At present it's held up on support at 0.7219 ahead of today's trade balance data reading. If we see a negative result, I would expect it to drop down to 0.7157 over the course of the evening. If we do see a positive result them a jump higher to 0.7323 would not be far off and even the possibility of further extensions to resistance at 0.7400. A push past the 74  cent mark may be a bit of a struggle though with the current conditions and the Jackson Hole meeting giving the potential to cause surprises in the markets.

Crude oil I touched on yesterday and for good cause as Department of Energy data came through and showed another drawdown of -3.33M barrels, just under expectations of -3.48M. However, it also showed a drawdown in gasoline reserves of -1.22M barrels as well, so the market has taken this as a positive. It's likely that analysts will take this as a positive sign and that OPEC which has imposed production cuts efforts are likely to be working. I am inclined to agree, but at the same time US production is increasing, and if it does taper off then we could see markets naturally relax a little more and the bulls take control.

For crude bulls resistance at 48.82 is the target to look to break with further extension at 50.21 likely to be the strong point and key area to break into going forward. If we do see USD strengthening however this could slow things down and even force oil down lower. In that event support levels at 46.50 and 45.47 are likely to be the key targets here and would most likely be the line in the sand for bulls with the recent trends. 


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