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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media


CURRENCY: Strength from Chinese exports will need to be priced this morning and should support NZD and AUD. It is hard to see why the NZD would decline ahead of the RBNZ Thursday.

RATES: Expect NZ interest rates to open unchanged to a touch lower.


CURRENCY: Market positioning drove currency moves as the market squeezed out long USD positioning. However, strength in USD/JPY indicates once positioning is reduced, the USD will remain in demand.

GLOBAL MARKETS: The much-anticipated US payrolls report dominated markets on Friday. The generally positive report initially triggered a positive USD/negative bonds response, but this was quickly reversed. It appears the implicit market expectations were so high it was a case of "buy the rumour, sell the fact." Indeed, a nasty "short squeeze" saw many caught out. US 10 year rate yields spiked to 2.93 percent before quickly snapping back to 2.84 percent, and ended the day slightly below where they had been before the data was released. The USD had a similar indecisive dynamic. Equities were more definitive, with the main US indexes ending up 1.1-1.2 percent, while the major European indexes also had a good day. Commodity prices across the CRB index were up, led by softs. The Dubai oil price dipped a touch, while the gold sport price eased marginally.


PAYROLLS DON’T MATCH LOFTY EXPECTATIONS: Total US non-farm payrolls employment rose by 203k in November, marginally stronger than market expectations of a 185k rise (ANZ: +190k). Revisions to the prior two months were marginal (+8k). Job gains were broad-based across industries. In the separate household survey, the unemployment rate fell more than expected to 7.0 percent, due to solid employment gains. It is certainly true that a lower participation rate explains a disappointingly large proportion of the trend improvement in this number. But that said, the US labour market is strengthening. Employment growth over the 3 months to November has averaged 193k, which represents a pick-up in momentum since the slight slowing mid-year. Our near-term model based on initial jobless claims and the ISM employment indices also lifted since mid-year. Other indicators such as online job ads and the Conference Board’s present situation index, confirm the recent improvement in the labour market. Is it strong enough to trigger Fed tapering in December? Market views remain mixed, and FOMC views appear to be too, judging by opposing comments by the two FOMC members Plosser and Evans.


- China’s November exports came in much higher than expected, gaining 12.7 percent y/y versus October’s 5.6 percent, due to better demand from developed economies. Shipments to the US and EU rose by 17.7 and 18.4 percent respectively.

- China issued rules for trading certificates of deposit on the interbank market. The beginning of trading in CoDs is an important step towards liberalising rate markets, and has seen interbank rates rise sharply in recent days. Markets will determine the CoDs’ interest rates and prices, but it has not yet been revealed when trading will begin.

NZD/USD: The danger of great expectations…

US payrolls were strong and the unemployment rate fell. However, NZD/USD strengthened remarkably after attempting lower. This reversal illustrates market expectations were overly bullish, and is a classic squeeze of positioning. Medium term we believe the continued recovery of the US economy will mean a new post-float high for NZD/USD is out of reach for Q1 2014, whilst seasonality may see NZD/USD remain strong in December.

Expected range: 0.8220 - 0.8340

NZD/AUD: NZD illiquidity…

The Kiwi demonstrated its lack of offer-side liquidity, outpacing AUD in the long USD position squeeze post-payrolls. Breaking above 0.91 saw NZD/AUD in uncomfortably elevated territory. Q3 manufacturing activity from NZ as well as QV house prices shouldn’t give any reason to change this view - although the strong Chinese exports may support AUD.

Expected range: 0.9050 - 0.9140

NZD/EUR: German factory orders…

German factory orders declined by 2.2 percent in October, a bad sign for EUR. However, EUR was driven higher by USD selling. Tonight German trade and current account data should be more optimistic.

Expected range: 0.5990 - 0.6080

NZD/JPY: Payrolls impact yen…

The USD/JPY was one of the few currencies to react as one would have assumed to strength in payrolls, with yen weakening as NZD strengthened against expectations. This sent this cross on a rapid trip higher.

Expected range: 84.00 - 85.50

NZD/GBP: Sterling unchanged…

Cable was relatively unchanged after payrolls, as there was little positioning against GBP due to domestic strength. This left NZD strength as the driver.

Expected range: 0.5000 - 0.5100

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