The New Zealand Dollar continues to consolidate in the general risk-off environment over the past 24 hours. Initially the Kiwi dipped to a fresh low of 0.6548 but otherwise held its ground as emerging markets broadly softened and market conditions favoured the strengthening Greenback. Opening this morning at 0.6563, the NZD looks to be stuck in a number of geopolitical cross-currents.
The main story of the day was again emerging markets, the main contributor to the collapse in risk sentiment. The Turkish Lira again dominated headlines with their surprising appreciation against a rampant USD. The Lira strengthened by about 5% after Qatar committed to a $15b direct investment package for Turkey. Regulators in Turkey also highlighted further limits on FX swaps which helped ease concerns for the Lira. Despite the positive step forward, the rhetoric stepped up a notch with President Erdogan announcing tariffs on a variety of US goods. Despite the appreciation in the Lira, emerging markets continued their broad sell-off, pointing to other under-lying issues with the sector.
Commodity prices also found little support in this market, with Copper in particular falling another 4% to post a 20% drop from its recent peak in June. Adding fuel to the fire was a 2-3% drop in oil prices and further weakening in the Chinese Yuan.
Overall, the New Zealand Dollar was caught in the cross-winds as broad weakness in emerging markets, falling commodity prices, US monetary Policy, Chinese growth and trade wars all begin to take its toll. As a currency that benefits from risk-taking, this environment does not help the Kiwi’s fortunes. The New Zealand Dollar now looks to hold its ground with attentions firmly affixed to off-shore events.