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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Attention will turn to global activity indicators today. HSBC China PMI and NZ data (ANZ job ads, migration, consumer confidence, and card spending), along with flash PMIs in Europe and US will set direction.

RATES: Kiwi rates are likely to open slightly higher as US bond yields lifted in reaction to more upbeat FOMC Minutes.

REVIEW

CURRENCY: GBP was supported after a 7-2 MPC vote was revealed with two MPC members voting for an immediate rate increase. USD found support from the tone of the FOMC minutes, which saw risks of earlier rate rises.

GLOBAL MARKETS: More upbeat central bank minutes on both sides of the Atlantic were key to market movements overnight. First up, BoE Minutes showed two MPC members voting in favour of a rate hike which saw GBP initially spike, short sterling rates rise 4-5bps and 10yr gilt yields end higher. FOMC Minutes also revealed growing dissension amongst the ranks, with US 10yr yields 2-3bps higher on risks that Fed rate hikes could arrive earlier if progress towards Fed goals occurs more quickly than expected. The USD strengthened, with NZD/USD back down to yesterday's 5-mth low at 0.8380.

KEY THEMES AND VIEWS

FED MINUTES REVEAL SOME DISSENSION AMONGST THE RANKS. Minutes from the July 29-30 FOMC meeting showed the internal debate within the Committee is heating up. "Many participants noted that if convergence toward the Committee's objectives occurred more quickly than expected, it might be appropriate to begin removing monetary policy accommodation sooner than they currently anticipated". Some even called for a relatively prompt move towards reducing policy accommodation. Participants generally agreed that labour market conditions and inflation had moved closer to the Committee's longer-run objectives, and most anticipated that progress towards these goals would continue. The range of views on the degree of slack in the labor market differed widely, but on balance the tone of the Minutes was more concessionary with many members noting that

"characterization of the labor market underutilization might have to be changed before long, particularly if progress in the labour market continued to be faster than expected". So the Yellen-led Fed appears to be taking some baby steps toward an exit strategy, with dissension amongst the ranks slowly rising. We know Plosser dissented in July, while fellow hawk Richard Fisher also indicated other members were coming round to his more upbeat view. Next up, Yellen is scheduled to speak at Jackson Hole (Sat 2am NZT) on "re-evaluating labor market dynamics." Markets are currently pricing the first hike in the Fed Funds rate for July 2015, although today's Minutes suggest that a number of members on the Committee are coming round to ANZ's view for an earlier start to rate hikes (we have March pencilled in).

BOE MINUTES ALSO REVEAL SPLIT VOTE. Minutes from the Bank of England's August meeting revealed a 7-2 vote, with McCaffery and Weale voting to increase the base rate by 25bps. Both argued that "economic circumstances were sufficient to justify an immediate rise in the bank rate" while "the continuing rapid fall in unemployment created a prospect that wage growth would pick up." They believe it would be prudent to raise rates before wage pressures arose, and that earlier rate rises would allow for a more gradual tightening cycle. ANZ expects the first BoE hike by the end of the year.

NZD/USD: US on track...

NZD has tested below the 0.84 support level and price action suggests a continued grind lower. The FOMC minutes were on the optimistic side, although caution clearly remains the Fed's watchword. "Many"

participants noted that if convergence toward the Fed goals continued at its above expected rate, that it might become appropriate to remove policy accommodation sooner than currently anticipated. USD found support in these comments and should continue to do so.

Expected range: 0.8360- 0.8440

NZD/AUD: Grinding through support...

NZD/AUD is thoroughly examining support levels between 0.9020 and 0.9040. Price action suggests that a grind through these levels is likely and a test below 0.90 is coming. NZ data in the form of ANZ Job Ads, migration, consumer confidence, and card spending may provide a catalyst for direction.

Expected range: 0.8980 - 0.9060

NZD/EUR: Flash PMIs...

European flash PMI's tonight are likely to keep pressure on the EUR. For now EUR is reacting more to USD news than NZD is, keeping NZD/EUR stable.

Expected range: 0.6290 - 0.6340

NZD/JPY: Driven by USD...

USD/JPY has the greatest beta to US data events of the US crosses. This has caused NZD/JPY to rally.

Expected range: 86.40 - 87.20

NZD/GBP: BoE dissent...

The Bank of England minutes revealed a 7-2 vote, with two members voting for a rate hike. This lead to GBP support and confirms our view that direction for this cross is likely lower.

Expected range: 0.5010 - 0.5070

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