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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: NZD could struggle in the face of a likely downgrade to the 2013-14 Fonterra milk payout forecast and a conservative 2014-15 estimate. Tonight the ECB will receive one of its last inputs into next week's policy decision in the form of money supply growth - a weak result could add additional downside pressure on EUR.

RATES: With a quiet session overnight for kiwi rates and little movement in Australian bond futures, local rates are expected to open unchanged.

REVIEW

CURRENCY: The USD broadly strengthened overnight following the release of better than expected US house price and durable goods data. There was little in the way of fundamental FX market drivers outside the US data prints.

GLOBAL MARKETS: It was a quiet overnight session with little in the way of fundamental drivers outside of the US house price, durable goods and consumer sentiment data releases. The data releases all came in better than expectations. This drove a broad-based appreciation in the USD and gave US equities a modest lift, although UST markets remained choppy and ultimately yields were little changed. European peripheral yields continued their reversal of last week's sell-off post European elections and were aided by supportive comments out of the Euro Central Bank National Governors meeting in Sintra. Market expectations for multi-pronged action at the June ECB meeting are high - anything less than rate-cuts, targeted LTROs and introduction of a private asset purchase plan will likely be seen as a disappointment. Commodity prices were generally softer. Corn and soybean prices dropped further on signs of accelerating planting in the US.

KEY THEMES AND VIEWS

US DATA WRAP. Overnight there was better than expected US data. Durable goods orders rose by +0.8% m/m in April (0.7% expected), while growth in March was revised up to +3.6% m/m (from +2.6% m/m). Core orders (capital goods orders ex-defence goods and aircraft, which can be very lumpy on a month-to-month basis) fell by more than expected though, but this was more than offset by a hefty upgrade to the March figure. Overall capital goods orders and shipments show a strengthening trend, which should support better Q2 growth in equipment investment. The 20-city Case-Shiller House Price Composite rose by +1.2% m/m in March (vs +0.7%

m/m expected), taking the annual pace of growth to 12.4%, down a little from February. San Francisco and Seattle enjoyed the strongest monthly price growth (with annual growth in SF house prices up almost 21%), while prices in NY lagged at -0.3% m/m and +6.5% y/y. May consumer confidence was in line with expectations at 83.0 (vs 81.7 in April). The present situation index rose to 80.4 with the expectations component rising to 84.8. The data are close to recovery highs and consistent with an acceleration in Q2 GDP growth - which is nothing new. The bounce back in May is mainly a reflection of the improving labour market conditions, the upward trend in equity prices and the recent decline in households' borrowing costs.

OTHER EVENTS AND QUOTES

- A worse than expected Q1 GDP result in South Africa weighed heavily on the rand. GDP growth of -0.6% q/q annualised was recorded

(-0.2% q/q expected), seeing the annual pace of growth slip to +1.6% (vs

+1.9% expected), down from 2.0% y/y in Q4 2013.

NZD/USD: Euro leads the way lower...

The NZD closely followed the move lower in EUR overnight. With little in the way of fundamental releases outside the US overnight, all eyes will be on today's Fonterra payout update as the key directional driver for Kiwi.

Expected range: 0.8500 - 0.8580

NZD/AUD: Possible lift on the horizon...

A weak Australian construction report (which feeds into next week's Q1 GDP report), could provide the cross with a lift back towards 0.9260.

The domestic focus will be on the ANZ Business Outlook for May.

Expected range: 0.9210 - 0.9260

NZD/EUR: ECB keeping the pressure on a lower euro...

Despite the sharp swing towards 'anti-Europe' parties in the weekend's European elections, the result was largely as expected and as such there has been little impact on the euro. Of more importance will be the money supply growth data due tonight, one of the last data feeds into the ECB's highly-anticipated policy decision next week. A slip in M3 growth would likely initiate further euro weakness.

Expected range: 0.6240 - 0.6290

NZD/JPY: Tight range persists...

NZD remains in the driving seat for this cross with no fundamental macro releases due out of Japan today.

Expected range: 86.60 - 87.50

NZD/GBP: UK loans numbers weigh on Sterling

Disappointing UK loans data weighed on Sterling in the overnight session but similar falls in NZD/USD sees the cross remaining in a very tight range.

Expected range: 0.5060 - 0.5120

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