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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: NZ net migration and credit card spending should have minimal impact in a very quiet start to the week from a data perspective.

Geopolitics and events later in the week - particularly the RBNZ - will drive direction.

RATES: NZ yields are likely to open under slight upward pressure given overseas moves.

REVIEW

CURRENCY: Both AUD and CAD found good demand on Friday, while SEK continued to underperform. Geopolitical questions dominated, with US-Russia and Israel-Palestine relations in the spotlight.

GLOBAL MARKETS: Friday was a very quiet session to finish the week, with limited data. Moves on FX markets were largely driven by flow rather than fundamentals. Markets generally decided they had overdone the reaction to the shooting down of MH17. Equity markets rallied into the close to mostly finish higher across Europe, and ended up solidly in the US as well, rebounding after Thursday's losses. Sovereign bond markets were mixed: US Treasuries sold off across the curve, with the 10-year yield up 3.5bps (to 2.48%). The UK gilt curve flattened, core euro area yields were generally higher, but peripheral bond markets rallied. Gold prices retraced lower, almost reaching the trading level seen prior to the Ukraine incident, and crude prices saw a similar move.

KEY THEMES AND VIEWS

INFLATION THE STORY OF THE WEEK. Canada's CPI inflation came in slightly stronger than expected in June at 2.4% y/y (core 1.8%). The Bank of Canada acknowledged last week that the recent pick-up in inflation has been stronger than expected and may be more persistent than expected -

and that they therefore were moving from a dovish to a more neutral stance. US June month inflation is out tomorrow - it is typically not closely watched but may garner more attention following the recent upside surprises in the Fed's favoured core PCE deflator. Australia's CPI data is out Wednesday - it has a modest correlation with NZ CPI inflation, which last week came out a tad lower than expected. Finally, Japan's CPI is out on Friday - the question for them is whether a slide back into deflation can be avoided now the yen depreciation has flattened out. But of course the main news for NZ markets this week is the Reserve Bank's OCR Review on Thursday. Only one commentator (not ANZ) is picking that the RBNZ will have been sufficiently spooked by the dairy slide to pull its well-signalled hike this week. With the RBNZ the only global central bank in action this week they are likely to get plenty of press, whatever they do.

OTHER EVENTS AND QUOTES

- "We can't just leave the avoidance of bubbles to government supervision." German Finance Minister Schaeuble warned the ECB in the weekend about the less desirable effects of loose monetary policy.

- Cotton futures have experienced their longest slump in 55 years, not boding well for wool prices.

- Reports suggest the UK Government is about to open a probe into manipulation of FX benchmarks.

NZD/USD: Awaiting the RBNZ...

Net migration and credit card spending are unlikely to drive NZD today, but the former should provide support. The markets will be waiting for the RBNZ on Thursday before moving NZD/USD significantly. Carry found support, to USD's detriment, after the July Michigan confidence unexpectedly declined.

Expected range: 0.8640- 0.8710

NZD/AUD: AUD CPI...

The AUD found solid demand on Friday, sending this cross lower again.

Australian Q2 CPI Wednesday is likely to be the main Australian event for this cross before the RBNZ on Thursday. We expect AUD to continue to outperform NZD over the coming months.

Expected range: 0.9220 - 0.9275

NZD/EUR: European activity...

The EUR/USD briefly broke through 1.35 on Friday before rebounding strongly. The Portuguese bank holding company Espirito Santo International (ESI) filed for creditor protection, while Banco Espirito Santo announced it would reimburse all retail holders of ESI commercial paper.

Expected range: 0.6380 - 0.6450

NZD/JPY: JPY inflation...

Japanese monthly CPI on Friday is the next Japanese data point of note.

Given the yen has been stable of late, the question is whether inflation expectations are changing in Japan.

Expected range: 87.60 - 88.60

NZD/GBP: BoE minutes...

Markets will look to the BoE minutes to see if the question of timing for rate hikes was raised at the last meeting. Should there prove to have been little discussion GBP holders would find this disappointing.

Expected range: 0.5060 - 0.5120

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