Kiwi leads traders on a Delta dance

New Zealand is grabbing the headlines in Asia today, but for all the wrong reasons. It reported its first community case in Auckland yesterday that has risen to seven and counting this morning. The government placed the entire country in lockdown overnight, sending the New Zealand dollar tumbling by over 1.0%.

That made the Reserve Bank of New Zealand’s policy decision this morning all the more interesting as a 0.25% rate hike had been pencilled in by the entire world. As it turned out, the RBNZ blinked and left rates unchanged at 0.25%, sending the kiwi another 0.50% lower to 0.6870. However, the RBNZ signalled that it still intended to raise rates, and we saw the flightless bird whipsaw markets, and it is now 0.45% higher on the day at 0.6950. Monetary policy appears to have achieved her immunity with vaccines, it seems. Cases are almost certain to rise, perhaps precipitously inside fortress New Zealand, and today’s bounce could be the best we see of the New Zealand dollar rally for a while.

Elsewhere, risk aversion was the theme of the night in New York. US Retail Sales disappointed while markets completely ignored better industrial production. Home Depot’s shares fell after quarterly earnings came up short, continuing a trend of severe punishment for companies who don’t meet earnings expectations against a background of pimped-up valuations. What we can take out of the overnight session is that fears are increasing of a slowing global economic recovery that was K-shaped anyway, especially after China data disappointed earlier in the week. Behind it all is the ever-present threat of the Covid-19 delta-variant, and markets finally succumbed to those nerves overnight.

The US dollar soared even as the US yield curve remained unchanged. Haven buying is evident in gold, which is also getting an Afghanistan boost. Oil prices sank while even fellow haven currencies, the Swiss Franc and Japanese Yen, bowed before the US dollar while even the digital Dutch tulip, bitcoin, retreated by 2.70%. My charts suggest a break below USD 44,000 of US taxpayer revenue backed fiat currency, not dodgy US dollar “backed” unstable coins, could be in for a much deeper retreat. Before all the crypto-massive reach for their social media and email phasers to zap me, the greater uptrend remains intact as long as the 50 and 100-day moving averages, both near USD 38,000.00, remain intact, with a target of around USD 52,000.00. I know that isn’t USD 23,567,945,843.22, but work with me; the fiat currency zombie apocalypse might happen. Now go back to your formula one racing car computational workstation seats and stack of empty pizza boxes and leave me alone.

If the mood was sombre overnight, that doesn’t seem to be the case in Asia today. True, Asian currencies remain under pressure as the US dollar surges, but equity markets have rebounded strongly today. Looking for drivers to explain the rally, China’s Covid-19 cases fell today, admittedly from a low base. Japan’s trade surplus exploded higher, although looking below the bonnet, exports fell, but imports fell a lot more, flattering the headline and implying supply chain challenges remain and domestic consumption is fragile. This morning, the PBOC set the USD/CNY fixing at 6.4915, the weakest CNY mid-point for six weeks. That may be lifting sentiment in mainland equities.

This afternoon, the Eurozone, and the United Kingdom both release inflation data. However, barring a huge upside surprise, I expect neither to have much market impact. Investors will be eyeing the nut and bolts of the FOMC minutes later this evening for signs that a majority of members are swinging behind a taper sooner rather than later. That could boost the US dollar once again. Minneapolis Federal Reserve President Neel Kashkari, an FOMC dove, was anything but in comments early this morning, signalling a Fed tapering either side of the year-end was a reasonable possibility. He also said cryptocurrency is 95% fraud, hype, noise, and confusion. He is my favourite Fed President.

However, none of those releases is first-tier, and I expect growth and delta fears to continue to dominate markets. It will just be a matter of whether the overnight fall by stocks on Wall Street is a dip to buy or the start of a minor correction. Fortune favours the former.

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