VIX moves higher despite stronger US equities, traders sell the AUD in favour of the Kiwi, ASX futures 8 points lower

The falling Australian dollar relative to the New Zealand dollar accelerated its move yesterday as the Reserve Bank of New Zealand (RBNZ) indicated its next monetary policy move would be another rate hike. For much of this year it seemed as though the Bank, which has moved rates four times this year from 2.50% in January to 3.50% now, had gotten way ahead of itself as falling dairy prices hindered export income and took pressure off inflation. But irrespective of that particular phenomenon, New Zealand's economy (which is actually driven largely by its thriving services sector) is experiencing solid GDP growth. There is a very clear disparity between New Zealand and Australia's economies; while its dairy production is hugely desirable to its Asian customers, the fall in prices and subsequent falls in export values really hasn't hindered its economy much at all. Like many economies adjusting to lower commodity prices, New Zealand is suffering from below-target inflation. But the RBNZ seemed to look beyond this and issued guidance that suggested that some further increases in the overnight cash rate should be expected. It's a tough one to read, because the RBNZ has consistently talked the NZD down this year, claiming that falling export prices should have pushed the currency much lower than it has. But traders have backed the premise for an imminent rate rise and bought the Kiwi.

Today's first chart shows the AUDNZD currency pair, which came off pretty dramatically after the RBNZ's press conference. On relative terms, New Zealand's economy doesn't have the dark clouds that Australia's has with regard to the size of the impact that falling commodity prices have had on big slices of our resource sector, and the flow-on effect of falling tax revenues from that sector. Up until now, the AUDUSD and NZDUSD currency pairs (see today's second chart showing these pairs in percentage terms) had been neck-and-neck as far as % performance went since the US dollar strengthening theme really kicked in around the middle of this year. If you're interested in economics and have time, it's worth reading through the latest RBNZ Monetary Policy Statement by clicking here to find out more about the New Zealand economy.

In today's last chart I've shown the S&P 500 and the VIX index, showing that--despite a small move higher in US equities overnight--the implied expectation of equity market volatility rose again during the session. While the world works out exactly what these continued falls in the oil price mean for the global economy, there are definitely indications of a few frayed nerves among traders.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: Chinese retail sales and industrial production out at 4:30pm, Eurozone industrial production out at 9pm, University of Michigan confidence survey out at 1:55am, all Sydney time.

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