NZD hits 10-month low as hopes of recovery pinned to Chinese intervention  

Key Movers

Currency markets were in turmoil through trade on Thursday as the Peoples Bank of China bolstered attempts to defend the Chinese yuan. Policy makers set a daily fix well beyond market estimates and ordered state banks to step in and intervene in currency markets to prevent further wide scale depreciation driven by fundamental forces. Having traded at 7.35 the USD/CNY fell back toward 7.30/31 as news of interventionist policies filtered through. Lacklustre consumption, deflationary pressures, a beleaguered property market, and lack of stimulus have conspired to exacerbate CNY weakness and elevated concerns for the state of the Chinese economic recovery. Hopes a post covid, Chinese-led rebound would fuel activity across the global economy have well and truly faded amid a pall of uncertainty and risk aversion. Global bond rates continue to rise, marking 10-year highs as markets exit equities and risk assets. Amid the rising rates backdrop the yen hit a fresh 9-month low against the USD at 146.55. It was at this level the Bank of Japan and Ministry of Finance officials previously stepped in to defend the yen, forcing a move back toward 130. The question now is, will they have similar success? At the time, Treasury yields were falling helping aid support to the JPY, whereas we are now caught in a down loop of rising global rates and a risk off mood, making it much more expensive for the BoJ to force the same outcome.

The euro is now trading below 1.09 and the GBP is firmly entrenched within a 1.27 range. Our attentions remain with China and the broader rates and risk narrative for direction into the weekly close.