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"Risk off" as commodities trashed

Written by Sam Coxhead on May 6th, 2011.      0 comments

8:20 AM (NZT) The inklings from the silver market earlier in the week proved correct. Offshore markets are in the midst of a good old fashioned cleanout.  Commodity markets are a sea of red, with the CRB (Commodities Index) down 5% on the day. Equities are down around 1% and bond yields have moved lower across the board. Weaker manufacturing data in both Europe and the US helping the surge towards safe assets.
The USD has rallied around 1.25% and demand for JPY remains very strong. The Bank of England and European Central Bank both announced their cash rates unchanged as expected. But comments from ECB head Trichet were not as hawkish(tough on inflation) as the market expected and now the next hike is priced for July , as opposed to June. This has seen the EUR trashed against all trading partners, with its damaged limited against the AUD and NZD, which are both also under pressure.
With the move away from growth assets , the selling pressure in the NZD and AUD was always going to come. At this stage the AUD has given up a little more ground that the NZD. The AUD has dropped 4% from its peak at 1.1012 on Monday. Markets will no doubt remain fragile and illiquid ahead of the US employment numbers tonight. If the weekly Jobless Claims number in the US is an indicator, job growth will not be as strong as the 185k growth the market  is expecting.
 Those central bankers who maintained their lines that the commodity price induced inflationary pressure would be transitory, could well be proven to be correct if this move indicates a key day reversal of the bullish commodity trend.
The RBA Quarterly Monetary Policy Statement at 11.30am AEST will be watched by the market for further insight to the thinking from the RBA.
    Last 24 hours trade
  Current level Low High
NZD/USD 0.7837 0.7816 0.7942
AUD/USD 1.0573 1.0537 1.0771
NZD/AUD 0.7413 0.7351 0.7417
AUD/NZD 1.3489 1.3482 1.3604
NZD/GBP 0.4785 0.4762 0.4808
NZD/EUR 0.5395 0.5298 0.5399
NZD/JPY 62.86 62.56 64.08
NZD/CAD 0.7590 0.7563 0.7616