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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media


CURRENCY: NZD/USD is likely to remain range-bound in the near-term, with supply coming in over 0.87c. However, solid demand should keep any declines minimal. US releases remain the driver for currency tonight.

RATES: NZ yields largely shook off the offshore rally in the overnight London session and are expected to open broadly unchanged.


CURRENCY: The USD was the strongest currency overnight as the data continues to suggest the US performed well over spring. NZD gained against AUD and SEK, but was a mild underperformer against other G10 currencies.

GLOBAL MARKETS: Climbing tensions in the Middle East trumped the improving tone in US data. US equity indices were mostly in the red, with modest overall movements in European bourses (Euro Stoxx up, FTSE 100 down). Government bond yields rallied, with US Treasury 10-year yields down 4bps to 2.58%, with a narrowing in peripheral spreads to bunds. The CRB index was flat, with falls for oil futures but gold prices up.


US REBOUND CONTINUES. The upswing evident in recent US data may reflect some catch-up in the data following the sharp weather-related dip in Q1, but the growing risk for markets is that it also reflects strength in underlying activity. The lift in new home sales (504k, +18.6% m/m) and consumer confidence (85.2) to their highest levels since the GFC suggest that the lull in housing market activity looks to be abating. Not surprisingly, the data fitted in with hawkish Philadelphia Fed President Plosser's assessment of the economy (see below). The risk for markets now is that the strength evident in the data is more than a weather-related rebound. If the strong tone of data continues through the US summer, markets will be taking Yellen at her word, with US interest rate rises to be sooner and more rapid.

GERMAN IFO DIPS. The fall in the June IFO was consistent with weaker preliminary PMI data, easing to 109.7, led by a fall in the expectations component to 104.8 from 106.2. The current assessment was unchanged at 114.8. The readings were consistent with the Bundesbank's assessment of the economy which they expected to ease in Q2 following the mild winter.

Growth is expected to re-accelerate during the second half of the year.


- Plosser upbeat: "My overall view of the economy is fairly optimistic. After a first quarter buffeted by winter storms, I believe we are poised to grow at a rate somewhat above trend for the remainder of this year"... "We have ample monetary accommodation in the economy to ensure that we will be able to achieve our 2% target over time. It is important, however, that we continue to reinforce our commitment to that goal so that inflation expectations remain well anchored near our target."

- BoE Governor Carney sets the market straight: "Developments on the wage front suggest to me that there has been more spare capacity in the labor market than we had thought." Despite this, "expectations for an interest-rate increase for the latter half of this year were relatively low juxtaposed with a run of quite strong data," ... "What we're trying to do, and I'll make it absolutely clear, is that we'd like to see the market adjust to the data just as our opinions are updating.

We were surprised it had not."

NZD/USD: US data strength continues...

The USD performed well overnight, due to strength in Conference Board Consumer Confidence and New Home Sales. The US data trend remains broadly strong, and some USD strength should be expected. Despite this, tonight's third read of Q1 GDP and Durable Goods Orders are both expected to remain subdued.

Expected range: 0.8660 - 0.8725

NZD/AUD: Stable...

AUD underperformed its G10 peers overnight, losing ground across the board. This cross should remain just below 0.93 today, as there are only minor releases out of Australia - Skilled Vacancies for May, and a speech by RBA Deputy Governor Lowe at the G20, titled "Meeting Global Challenges".

Expected range: 0.9240 - 0.9290

NZD/EUR: EUR resilient to data...

The German IFO survey missed expectations in all three measures -

Business Climate, Current Assessment, and Expectations. Notably, the EUR rebuffed attempts to drive it lower and remains resilient to weakening European data.

Expected range: 0.6350 - 0.6410

NZD/JPY: JPY still stuck...

Yen remains pegged to the USD, leaving this cross to trade in line with NZD/USD fortunes. We expect this to continue.

Expected range: 88.40 - 88.90

NZD/GBP: Downplaying the boom...

BoE Governor Carney attempted to downplay the speed at which interest rates might rise. This took some of the shine of GBP strength, but Sterling remains the contender to the NZD crown.

Expected range: 0.5100 - 0.5130

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