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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: With little top tier data expected locally, we're eying offshore developments; though there is little on the data front in the Northern Hemisphere tonight meaning recent tight ranges look set to persist.

RATES: Kiwi rates are likely to open unchanged to a touch higher in line with global moves.

REVIEW

CURRENCY: FX markets have consolidated after yesterday's post-FOMC moves, with the EUR, GBP and AUD all extending their moves higher against the USD. NOK was the key standout, depreciating sharply against the USD and EUR after the Norges Bank presented a more dovish than expected outlook for interest rates following its June monetary policy meeting.

GLOBAL MARKETS: European equity markets rebounded solidly after flat-lining over the past week. European sovereign bonds also rallied in line with yesterday's move in US Treasury's, although UK gilts underperformed given expectations that an interest rate hike is coming by the end of the year. US Treasury yields consolidated above 2.60%

following yesterday's post-FOMC decline. WTI crude oil hit USD106.60 a barrel on continued concerns over Iraq, though insufficient to influence wider financial variables.

KEY THEMES AND VIEWS

DATA WRAP. The US and UK data flow had minimal impact on markets. May UK retail sales fell 0.5% m/m. Much of the weakness was due to a 2.4% drop in food sales which had surged the prior month due to Easter, so statistical payback prevailed. Over the past three months, sales have risen 1.1%; that's a healthy +0.4% m/m clip. With the UK labour market recovering and real wages starting to move up, the outlook for private consumption remains upbeat (and anyone that has been to London of late will confirm the same) - so this data won't alter the BoE's view that interest rates may have to move up sooner rather than later. US initial jobless claims were 312k in the week ended June 14. That suggests another solid payrolls number in the region of 200k. The June Philly Fed survey - one of the better indicators of business sentiment - came in healthy. The headline series printed above expectations at 17.8 vs 15.4 in May (exp: 14.0). All the components improved too - new orders increased, employment was up, prices paid stepped up, capex spending plans rose and the future index soared. All good.

A ONE, TWO, THREE TRICK PONY OR MORE? A massive growth contribution from construction has some bleating on about NZ being the two trick pony (a city rebuild and Auckland), which if you add some cows make three. In this game it pays to travel and get the full story; that's what we call knife and fork style economics (that's a few dinners chatting along the way). 100km down the road from Christchurch is Ashburton; it's booming:

that's irrigation for you. South Canterbury is riding the same wave.

Central Otago is going very well with evening flights the icing for Queenstown's cake. Southland is just Southland and getting on with business and not crowing about it. Blenheim just had a bumper grape harvest; Nelson has a reasonable vibe (being there on Wednesday).

Taranaki - white and black gold magic. Bay of Plenty - Psa being worked through (kiwifruit land prices have rebounded), seeing Aucklanders relocate and the Port going well (though the forestry sector is grinding to a halt; we're watching). Wellington - no Government spend but lots of IT spend and investment, and Kapiti doing nicely. Waikato - a two hour wait to get into Fieldays last Friday is telling you something. Manawatu

- trundling along solidly. There are weak spots, but this talk of cities surging and the regions being down in the dumps is just hubris.

NZD/USD: Kiwi consolidates post-FOMC gains ...

A quiet session overnight in NZD/USD following the FOMC-fuelled boost from yesterday. Today's direction is likely to come from ANZ Job Ads and Consumer Confidence releases, with little in the way of other macro events on today's calendar.

Expected range: 0.8680 - 0.8780

NZD/AUD: Cross retraces lower as AUD outperforms on FOMC ...

A quiet day in store with no Australian events scheduled, so watch for the NZ data releases.

Expected range: 0.9230 - 0.9320

NZD/EUR: Struggling to maintain break above 0.6400 ...

NZD/EUR finds itself back at 0.6400, retracing yesterday's post-FOMC gains overnight as the kiwi failed to keep up with the move higher in the euro.

Expected range: 0.6360 - 0.6440

NZD/JPY: Japanese trade figures in focus...

With the market's current lack of volatility exemplified by the yen, trading in NZD/JPY is expected to remain within tight ranges. As such, the NZD leg will persist in being the main driver of this cross.

Expected range: 88.30- 89.30

NZD/GBP: BoE rate hikes on the horizon lift sterling

Bank of England MPC member McCafferty stated that the UK should start raising rates before the output gap closes. This saw GBP outperform for the remainder of the London session. On-expectations UK retail sales failed to make an impact.

Expected range: 0.5090 - 0.5140

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