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NZ Q1 GDP and threat of US credit downgrade increases volatility

Written by Sam Coxhead on July 14th, 2011.      0 comments

11:10 AM (NZT) The last 24 hours has been a period of huge volatility in the currency markets as European debt fears play second string to weakening US dollar.
European debt markets remained choppy overnight but a statement by credit rating agency Fitch in support of Italian debt programs saw the funding costs for Italy drop quickly, and the EUR start to gain some ground.
US Federal Reserve Chairman Ben Bernanke has also made his semi-annual monetary policy report before the Senate Banking Committee. In his testimony he has not ruled out further easing methods should the economic conditions warrant it. This acceptance that further Quantitative Easing was still on the table saw risk assets accelerate their climb and the US dollar start a sharp slide, especially against the AUD and NZD.
Adding to the woes of the US dollar is a report from credit rating agency Moody’s that they intend to update the US credit Rating in the coming weeks and that the US remains on negative watch as the debt ceiling and long term debt discussions continue.
The NZD was boosted by demand before the delayed first quarter GDP number, and on its subsequent release saw further strong demand.
The number was .8% vs a .3% expectation and this will see the chances of a December rate hike from the RBNZ greatly enhanced. This prospect will underpin demand for the NZD in the coming sessions. Volatility will continue as the markets remain illiquid amongst such large intra session moves.
The NZD has set new highs against the USD and GBP and other records are close by.
          Past 24 hours
  Current level Pre- NZ GDP  % Chge NZ GDP   Low High
NZD/USD 0.8490 0.8399 1.07%   0.8173 0.8500
AUD/USD 1.0772 1.0756 0.15%   1.0583 1.0802
NZD/AUD 0.7877 0.7810 0.85%   0.7707 0.7826
AUD/NZD 1.2695 1.2804 -0.86%   1.2778 1.2975
NZD/GBP 0.5250 0.5200 0.95%   0.5132 0.5255
NZD/EUR 0.5962 0.5908 0.91%   0.5851 0.5968
NZD/YEN 67.00 66.30 1.04%   64.73 66.57
NZD/CAD 0.8120 0.8041 0.97%   0.7896 0.8063