NZD gained against most major currencies in September – BNZ

Analysts at BNZ explain that September was marked by low volatility continuing and NZD/USD ending the month within 0.5% of where it began. 

Key Quotes

“Global equities continued to track higher, with the MSCI World Equities Index reaching a fresh record high and a solid gain of 2½%, supported by the backdrop of a broadly based global economic expansion.”

“After its poor run through August, the NZD showed signs of consolidation, as expected.  In the lead-up to the election, volatility in political polls led to some modest intraday and daily swings in the NZD, but they weren’t sustained.  The positive risk sentiment backdrop was generally supportive for the NZD.  Our risk appetite index reached its highest level this year of 84%, as the VIX index probed below 10 and credit spreads narrowed.”

“Early in the month, the USD continued to steadily fall, something it has done for much of this year, but the market decided that enough was enough and, after breaching some key technical levels, it recovered by about 2½% (TWI majors) over the last three weeks of the month.  This move was fundamentally supported by the US economic surprise indicator continuing to track higher and the FOMC showing little change to its policy outlook, signalling another rate hike in December and three more projected hikes next year.  The Fed indicated a start to its “quantitative tightening” programme from next month, which will see the size of its balance sheet gradually shrink over coming years to a set formula.  US tax reform got some headlines and helped support the USD, with Trump issuing his plan for tax cuts, designed to help increase the chance of them being supported by his Republican party.”

“The positive turnaround in the USD had an adverse impact on emerging market currencies and this saw some spillover effect for the NZD later in the month.  This backdrop provided a good excuse for some profit-taking in the NZD following the inconclusive NZ election result.”  “Notably, the lack of certainty about whether the next government would be National-led or Labour-led didn’t perturb the NZ equity market or the NZ rates market.  In the two days after the election result, the NZSE50 index had added about 1% against a flat global equity market backdrop while NZ-US rate spreads were flat to down slightly.”

“Throughout the month, tensions between the US and North Korea simmered away, with some hardhitting talk from both sides.  North Korea continued with its provocative missile tests and Trump responded by threatening to totally destroy the nation.”