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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: New Zealand consumer confidence should not contradict NZD strength this afternoon. There is little scheduled data tonight to drive markets and we expect relatively muted ranges.

RATES: Front end rates are likely to be reasonably steady, but the long end is likely to rise following offshore moves, steepening the curve.

REVIEW

CURRENCY: The Australian dollar was the prime mover overnight as the RBA Governor put a number on the AUD/USD cross rate. Generally the USD was strong as US retail sales showed a solid start to the Christmas season.

GLOBAL MARKETS: Better than expected US retail sales data overnight saw the USD strengthen against EUR, GBP, AUD and NZD (and others). However it was pointed comments from RBA Governor Stevens that an AUD at 0.85 was "closer to the mark" than 0.95 that really got markets going, with the AUD sliding almost one cent in an instant on the news. The NZD went with the AUD, but not to the same extent, and as a consequence NZD/AUD has moved above 0.92 for the first time since 2008. Meanwhile, Northern hemisphere equity markets were generally down and bond yields were generally higher - making for a slightly odd evening.

KEY THEMES AND VIEWS

NZD/AUD surges higher. The NZD/AUD cross reached a high of 0.9239 overnight. While the price action has intensified and the pace of the appreciation has been eye-watering, given the dataflow and the divergent attitudes of the respective central banks, it’s hard to see any meaningful correction. Indeed, whereas the RBNZ has said yesterday that it "will" increase the OCR, and has accepted that the high NZD is here for a reason, the RBA remains in easing mode, and the Governor there is actively trying to talk the AUD down. What’s more, the RBA Governor Stevens didn’t just say he preferred a weaker AUD, he actually put a level on it, saying that "I thought US85¢ would be closer to the mark than US95¢ at the time we started to make some comments some months ago", although he did qualify that immediately, saying "but really I don't think we can be that precise". Still, the comments stuck. While he didn’t say anything too pointed about monetary policy, he did hint at easier monetary conditions. Indeed, his comment that "I do think that, to the extent that we get some more easing in financial conditions, at this point it's probably preferable for that to be via a lower currency at the margin than lower interest rates" was rather pointed, even if his clear preference for easier monetary conditions is via the AUD, rather than the cash rate. Here in NZ, markets didn’t quite know how to take yesterday’s MPS. While the text of the MPS itself was reasonably upbeat (and the overall assessment was certainly more upbeat than the September MPS), the projections and policy assessment section were more balanced. Of note, the Bank’s interest rate projections were below current market pricing, which one would have thought might elicit some downward adjustment to front end rates and the NZD. But the market has been more cautious, preferring instead to focus on recent data, the lack of and attempt to talk the NZD lower, and the Bank’s higher NZD TWI projections.

OTHER EVENTS

- The Business NZ PMI rose by 1.8 points to 56.7 in November, reflecting broad based gains in most of the sub-series.

NZD/USD: Resilient...

Kiwi was dragged lower by the AUD last night after RBA Governor Stevens stepped up the verbal intervention, but remains resilient and trading above yesterday’s lows. The confirmation of a strong macro picture by the RBNZ and imminent hiking cycle are supporting NZD.

Expected range: 0.8160 - 0.8280

NZD/AUD: RBA vs RBNZ…

RBA Governor Stevens got traction last night when he put a number on his expectations for the AUD/USD. "I thought US85¢ would be closer to the mark than US 95¢, but really, I don't think we can be that precise." This is in contrast to the RBNZ who classify the NZD as high, but are focused on slowing the economy, so whilst still concerned, are less focused on the NZD suppressing tradable sector activity.

Expected range: 0.9200 - 0.9275

NZD/EUR: Weak production…

European industrial production was weak last night declining 1.1% in October. The details of the CPI releases from France, Ireland and Italy suggest downside risks to inflation remain in Europe.

Expected range: 0.5940 - 0.6040

NZD/JPY: Following the Nikkei…

Yen weakened overnight as the Nikkei strengthened, combined with NZD resilience ensuring this cross remains elevated.

Expected range: 84.00 - 85.50

NZD/GBP: Not in focus…

This cross hasn’t been a focus for markets and its stability shows the market is comfortable with strength in both the NZ and UK economies.

Expected range: 0.5000 - 0.5060

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