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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media


CURRENCY: The USD will continue to drive currency direction, and we expect it to remain bid as we await payrolls and ISM data on Friday night. US jobless claims and employment costs will dictate direction tonight.

RATES: Kiwi rates are expected to open higher following a decent sell-off in the US bond market after stronger than expected GDP data.


CURRENCY: NZD found a wall of bids as it approached the mid 0.84’s. We expect these to slow downward progress. USD was broadly bid, although the FOMC provided caution for the market.

GLOBAL MARKETS: It was an action-packed session overnight, with US GDP data surprising to the upside while the FOMC meeting contained few substantive changes. Q2 GDP surprised to the upside (see below) with positive revisions to Q1 data also contributing to a 9bpt sell-off in US 10yr yields (to 2.56%). Thereafter, US bond yields rallied 1-2bps as the FOMC maintained a business-as-usual approach while noting that "significant underutilization of labor resources remains". A stronger USD sees NZD/USD trading back below the 0.85 level. Earlier, equities weakened in the European session (Euro Stoxx -0.7%), but were little changed in the US session as the Fed stuck to its rates-on-hold mantra. In other data, US ADP employment printed above 200k (signalling another robust payrolls number on Friday), while German CPI was slightly above expectations in July (though the annual rate was unchanged at 0.8% y/y). Crude oil prices fell 1% on USD strength.


US GDP SURPRISES TO THE UPSIDE. Confirming what leading indicators have been telling us for some time, US economic activity bounced sharply in Q2, with the US economy growing at an annualised rate of 4.0% (3.0% exp.). There were also positive revisions to the weather-impaired Q1 GDP print (+0.8ppt to -2.1%) which should see the economy on track to beat the FOMC’s year-end forecast of 2.1-2.3%. Investment alone contributed 2.6ppts to growth on the quarter, with personal consumption contributing 1.7ppt (PCE lifting 2.5% q/q ann. vs 1.9% exp.). In contrast, net exports subtracted 0.6ppts, while inventories contributed 1.7ppts (after subtracting 1.2ppts in Q1) as stocks were rebuilt. 2013 GDP was revised to 3.1% y/y (2.6% prev).

FOMC REMAINS CAUTIOUS. This morning’s FOMC meeting saw the Fed taper by a further USD10bn (to USD25bn per month), while maintaining its largely dovish rhetoric of recent months. The Fed reiterated that any move in the federal funds rate (0-¼%) would arrive "a considerable time after the asset purchase program ends". The Committee noted that "there remains significant underutilization of labor resources", suggesting the Fed is in no hurry to hike rates as wages remain subdued. For the hawks, the FOMC did note that "inflation had moved somewhat closer to the Committee’s longer-run objective" while Plosser (a known hawk) dissented, viewing the economy to have made considerable progress towards the Fed’s goals. So it appears to be "business-as-usual" for the Fed, suggesting US bond yields will remain anchored for now while the next leg down in the NZD/USD may have to wait. We look ahead to Jackson Hole (August 21) and the FOMC’s September meeting as opportunities for the Fed to soften its dovish rhetoric. ISM and payrolls on Friday provide drive near-term direction.

NZD/USD: US Growth and a cautious Fed...

US Q2 GDP was strong, with solid details including core PCE of 2%. The kiwi tested lower, but found a wall of bids. The wider market was looking for a short-term USD trend, but was reminded that the FOMC remains cautious. However, the positive trend in USD looks set to continue, and we expect NZD/USD to continue to decline this week as the US data continues to dominate. Tonight it is the turn of Q2 employment cost index and jobless claims, along with the final regional activity survey - the Chicago PMI.

Expected range: 0.8430- 0.8530

NZD/AUD: A wall of bids…

After recent declines markets are happier to take profit in NZD/USD, this has led to some support for NZD over AUD.

Expected range: 0.9060 - 0.9140

NZD/EUR: A bob each way...

While German CPI was a tenth above forecast at 0.3% in July, Spanish CPI plunged 0.3%. While EU wide economic and industrial confidence both increased, consumer confidence was unchanged, while services confidence and the business climate indicator declined. EUR and NZD both reacted equally to US events.

Expected range: 0.6300 - 0.6360

NZD/JPY: JPY hit by USD strength...

Markets sent JPY lower in reaction to US data. USD/JPY was the largest mover overnight, but not due to Japanese factors.

Expected range: 86.80 - 87.80

NZD/GBP: Sterling to hold better...

We expect GBP to hold up better in response to USD selling; and we continue to expect this cross to trade lower.

Expected range: 0.4980 - 0.5040

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