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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Tomorrow night's Fonterra auction will be the key risk event for the NZD over the coming 24 hours. For the AUD, watch for a mildly dovish slant in the minutes from the RBA's June policy meeting. CPI and housing activity data are in focus for the USD tonight.

RATES: Some steepening of the Australian curve reported, with few kiwi trades. Local yields are expected to open unchanged.

REVIEW

CURRENCY: A very quiet start to the week with little in the way of fundamental events to drive direction. The USD failed to receive a lift from a better run of domestic data, with IP and the Empire and NAHB surveys printing above market expectations.

GLOBAL MARKETS: A quiet start to the week, with better run of US data failed to elicit much sustained market reaction. Equity markets were modestly lower in Europe, with the FTSE 100 down 0.3% and Euro Stoxx down 0.7%. US equities were up fractionally in early trading. Moves in US and European sovereign bond yields were also limited, with a slight widening in peripheral Eurozone spreads to bunds. Prices for Brent crude oil futures climbed on geopolitical concerns in Iraq, with no change in gold prices.

KEY THEMES AND VIEWS

AWAITING THE FED. Data overnight was a reminder that the US economy is trucking along nicely, with the 0.6% m/m rise in May US industrial production better than it looked as it was accompanied by upward historical revisions. The 0.6% m/m gain in manufacturing output also included upward revisions, and while it has taken six and a half years, manufacturing output has finally surpassed its pre-recession peak.

Automobile (+1.5%) and machinery output (+1.1%) led the gains, with the latter suggests businesses are investing more. Surveyed capacity utilisation also firmed (79.1%) and is a shade below its recent March high. More importantly, the surveys suggesting that production will continue to rise at a healthy pace, with the Empire State manufacturing index broadly unchanged at a four-year high, with widespread improvement in the survey details. While expectations of the first fed hike remain a 2015 story, the recent experience of the Bank of England should serve as a reminder of how quickly things can turn around, with Wednesday nights MPC minutes likely to be interesting reading.

OTHER EVENTS AND QUOTES

- RRR cut extended: Three medium-sized Chinese commercial banks, confirmed that the PBoC approved a 50bps cut to the reserve requirement ratio (RRR) last Friday, with cuts for other banks reported. Cuts are likely to be extended to other institutions to bolster liquidity as the PBoC seeks to bolster economic activity.

- IMF trims US growth forecasts: Growth of 2% is expected for 2014 (2.8% in April), with 2015 forecasts unchanged at 3%. The IMF also revised down its forecasts for potential output growth (2% vs 2.3%). The IMF's employment and inflation forecasts suggest "policy rates could afford to stay at zero for longer than the mid-2015 date currently foreseen by markets."

- RBA Minutes Today: There is the risk today's Minutes could read a little more dovishly than the post-meeting statement and will likely include commentary around the impact of the Budget on consumer confidence.

NZD/USD: Tight ranges the order of the day ...

With few significant fundamental drivers on the cards, the kiwi's tight range-trading against the dollar is expected to persist.

Expected range: 0.8630 - 0.8750

NZD/AUD: Rebound consolidates ...

The rebound in NZD/AUD has been capped below 0.9250. Potential triggers over the coming 24 hours for a break above this level include an upside surprise in tonight's Fonterra dairy auction and/or a more dovish than expected set of policy meeting minutes from the RBA today.

Expected range: 0.9180 - 0.9290

NZD/EUR: Struggling to push above 0.6400 ...

Like the trends in other kiwi crosses, the recovery in NZD/EUR has lost momentum. The cross has consolidated around the 0.6400 level predominantly in a 40 pip range over the past three days, with attempts to push above 0.6420-25 failing on a number of occasions.

Expected range: 0.6360 - 0.6440

NZD/JPY: Lack of market volatility keeping cross steady...

Little action in the cross has contained trading to a tight 30 pip range since markets reopened this week.

Expected range: 87.90- 88.90

NZD/GBP: UK inflation and retail sales data on the horizon ...

The big risk event for the NZD/GBP over the next 24 hours will be the simultaneous release of UK inflation and retail sales data. Upside surprises in either series will lend more support to market expectations of a BoE rate rise by the end of the year, and in turn, could pressure the cross below 0.5100.

Expected range: 0.5060 - 0.5160

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