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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Global December flash PMIs and the New York Empire manufacturing survey will drive markets. The more the global economy can recover, the less NZD will stand out.

RATES: Rates are likely to open unchanged after a quiet offshore session on Friday night.

REVIEW

CURRENCY: Relatively muted ranges on Friday: USD/JPY made 5 year highs, GBP was under pressure, and EUR and NZD remained strong against crosses. US PPI declined, reiterating a lack of inflation remains the US issue to watch.

GLOBAL MARKETS: Markets were in holiday mode on Friday, a very quiet end to the week. Eurozone employment and US PPI data did not move the market. Yields on 10-year bonds were down slightly across much of the European core, while the US yield dropped 1bp. In equities, the main European equities ended marginally lower, while the US indexes were little changed. Commodities as measured by the CRB index were down a touch, dragged down by corn prices. The Dubai crude spot price fell more than US$1/bbl, while the gold price eased slightly.

KEY THEMES AND VIEWS

REFLECTING ON THE Currency’s fortunes. And so another year draws to a close. The NZD has had a relatively steady year against the USD, with a 9½ cent range. It held up around the 0.83 mark until early May, when it dropped to around 0.78, bouncing around there until a steady climb in September back up to its prior levels. During this time the economy has steadily strengthened, and our commodity prices have held up much better than expected. That leaves expectations of Fed tapering. The fact that the NZD dropped sharply in May as Fed tapering came into play and then rose as it was taken off the table six months later suggests exporters may finally get some relief over the next 12 months as tapering occurs - though the impact of RBNZ tightening could also win the tug of war. Fed tapering would certainly be preferable to a commodity price crash as a cause for NZD weakness, if we are allowed to choose our catalyst. Against the AUD, the story has been very simple: onward and upward as the NZ economy and commodity prices have consistently strengthened relative to its neighbour. No obvious near-term let-up is in sight for this cross, which has risen from just under 0.79 to 0.92 over 2013, with the gains accelerating of late.

OTHER EVENTS

- US headline November PPI data were slightly weaker than expected, falling 0.1 percent m/m (+0.7 percent y/y). The core number rose 0.1 percent m/m, or 1.3 percent y/y. Pipeline inflation pressures remain very subdued, but these data are unlikely to alter the market's expectations that the FOMC could announce tapering next week.

- Wolfgang Schaeuble to remain German Finance Minister. No surprises there as Merkel announces key cabinet posts in her new Government following a coalition agreement being reached.

- The Hobbit: The Desolation of Smaug had a US$73m opening weekend in the US - slightly down on its predecessor’s US$84.6m in a more crowded market, but with significantly better reviews.

NZD/USD: Global activity indices...

Today we get flash PMI reads from China, Europe and the US. These reports are important for NZD/USD as the stronger the global economy becomes the less the NZD stands out from a strength perspective. US November industrial production and the December New York Empire manufacturing survey will dictate tonight’s direction, with market expectations for both to improve. December’s Empire report is the more current, and the more important of the two.

Expected range: 0.8200 - 0.8300

NZD/AUD: China urbanisation plan…

China has added details to its urbanisation plan. They hope 60 percent of their population will be urban residents by 2020, up from 50.6 percent in 2011. This should ensure demand for iron ore remains solid for the next decade. It will, however, also increase demand for NZ commodities.

Expected range: 0.9180 - 0.9250

NZD/EUR: Flash PMIs…

EUR remains strong, but focus is on tonight’s December flash PMIs, as signs of weakness may finally dent the EUR’s halo.

Expected range: 0.5980 - 0.6060

NZD/JPY: Tankan…

USD/JPY made a new 5 year high on Friday night, with the yen looking set to continue weakening over the Christmas period. With NZD expected to remain resilient over the same period, this cross looks strong. The quarterly Tankan survey will be important today with expectations of strength (yen weakness).

Expected range: 84.80 - 85.80

NZD/GBP: Under pressure…

Despite the good data prints (construction output was strong in October), sterling remains under pressure.

Expected range: 0.5030 - 0.5100

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