NZ dollar dips on weak PMI and risk-off

Summary:

• New Zealand dollar is by far the weakest major currency this morning due to a weaker print of PMI as well as overall risk-off mode
• Aussie drives lower on the back of rising risks related to possible rate cuts
• Oil prices keep trading higher this morning, the US released a video showing reportedly an Iranian boat removing unexploded mines from a Japanese-owned tanker

Antipodean currencies bruised by risk-off

The New Zealand dollar is by far the worst performing major currency this morning due to several factors including the gloomy manufacturing PMI release for May. It dropped markedly to 50.2 from 52.7, pointing to the lowest level of overall activity since December 2012. In turn, the details showed production subindex reached its lowest level since April 2012 at 46.2 (well below the barrier suggesting contraction), new orders were almost flat (50.4), inventory rose and employment produced a level of 48.6. Apart from the PMI release we also have another reason why risk-correlated assets are underperforming this morning - risk-off (we write about it a bit lower in this article). From New Zealand we also got a print regarding food prices for May. It produced a 0.7% MoM increase mainly due to rising meat and non-alcoholic beverages prices. Along with the kiwi, the Aussie dollar is also down roughly 0.2% against the greenback. In this case we were offered some reports from commercial banks sharing their views with regard to Australian monetary policy. Namely, NAB expects the RBA to cut rates three times this year and points to a possibility of even more actions from the Australian central bank at the beginning of 2020. In turn, RBC sees the RBA’s main rate at 0.5% by May 2020 (cuts in August 2019, February and May 2020). The Royal Bank of Canada cited the elevated underemployment rate, ample slack in the labour market as well as global developments.

The NZDUSD is driving lower this morning on the back of weak PMI, risk-off. The major support could be found nearby 0.6480 which could encourage some kiwi sellers to book their gains. Source: xStation5

US blames Iran for attacks on oil tankers

After the attacks on two oil tankers near the entrance of the Persian Gulf on Thursday, the United States released a video showing reportedly an Iranian navy boat removing an unexploded mine being attached to the hull of the Japanese-owned tanker Kokura Courageous, one of the tankers attacked yesterday. Despite denials from Iranian officials that the country was responsible for the attack, the Trump administration blamed Iran for it even as it lacked any public evidence. This has acted toward a further escalation of tensions between the two countries in which oil prices seem to be the largest winner. They shot up on Thursday and are continuing the rally on Friday’s morning - Brent prices are gaining 0.8%, while WTI prices are up 0.4% at the time of writing.

In the other news:

• Japanese industrial output (final) for April rose 0.6% MoM, capacity utilization rose 1.6% MoM at the same time

• Chinese equity indices are down 0.3%, SP500 futures point to a flat opening

• US 10Y yield has come back below 2.10% and trades at 2.084% this morning due to a flight to ‘safety’