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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: USD will find some support today after the message from Yellen remained unchanged. GBP, JPY, and EUR should remain under pressure. The US Services PMI and German IFO are the main data prints out tonight.

RATES: Local yields are expected to open little changed this morning, after the smallest of global rallies on Friday night.

REVIEW

CURRENCY: The USD found support from a consistent message from Yellen, while Draghi pressured EUR by standing ready to do more. BoJ Kuroda and BoE Broadbent also pushed their respective (JPY, GBP) currencies lower.

GLOBAL MARKETS: The Yellen speech did not elicit much market reaction, with the largely risk off' move seen in the London afternoon trading session related to headlines on a further escalation of tensions between Ukraine and Russia. The dollar strengthened modestly while equities weakened a little and there was a small rally on US and European sovereign bond markets. The news also triggered a small bounce in gold prices back towards the day's highs, and crude oil prices were weaker in response. US agricultural commodities rose a little but corn prices remain weak due to a bumper crop.

KEY THEMES AND VIEWS

LIMITED NEWS OUT OF JACKSON HOLE. Fed Chair Janet Yellen's much-awaited speech at Jackson hole turned out to be the fizzer many analysts had predicted, with her tone on the labour market little different to that at her July Semi-Annual Testimony on Monetary Policy to Congress and the more recent FOMC minutes. As such, there was minimal impact on markets beyond an initial few minutes of currency volatility as traders scanned the speech. The main interest at the pow-wow was a distinct split between the Fed's Yellen and the Bank of England's Broadbent, who sounded in no hurry to take any tightening action, and the ECB's Draghi and the Bank of Japan's Kuroda, who sounded ready to leap out of the starting blocks and provide more stimulus to their economies as deflation threats intensify. It certainly does highlight the world is not yet a 'business as usual' kind of place, and highlights why New Zealand and its monetary policy settings stand out in global markets for being exactly that.

UKRAINE CONTINUES TO IMPACT MARKETS. The situation in the Ukraine is far from resolved. Headlines on Friday night NZ time included NATO Secretary General, Anders Fogh Rasmussen, saying that NATO is observing an alarming build-up of Russian forces in the vicinity of Ukraine. And earlier, Ukraine's State Security Chief stated that he sees the movement of Russian trucks into Ukraine (the "aid convoy") as a direct invasion -

though this comment was hastily downgraded. German Chancellor Merkel visited Kiev and stressed the need for a political solution. Fitch cut Ukraine's credit rating to CCC on a worsening economic outlook, signalling a high risk of default.

OTHER EVENTS AND QUOTES

- The only data of note was from Canada. Retail sales (+1.1%

m/m, +1.5% ex autos, positive revisions) printed stronger than expectations but CPI inflation weaker (-0.2% m/m, 2.1% y/y). The retail miss was significantly bigger and so we saw a mildly positive impact on the CAD.

- A magnitude 6.0 quake centred in the Napa Valley outside San Francisco this morning has critically injured three and led to a local state of emergency being declared.

NZD/USD: Nothing to upset the apple cart...

Fed Chair Yellen stuck to the FOMC script - indicating there is still significant slack in the labour market - but ultimately there was nothing in the speech that would derail the growing US optimism. US short yields increased, flattening the curve as longer yields remained anchored. We would expect USD to continue to attract a bid, keeping NZD/USD under pressure.

Expected range: 0.8370- 0.8440

NZD/AUD: Capped...

Releases this week should continue to keep pressure on this cross.

Support is still holding at present, but price action (lack of bounces off support levels) continues to suggest this cross will grind through cross.

Expected range: 0.9000 - 0.9060

NZD/EUR: Draghi stands ready...

EUR has been under pressure since Draghi's Jackson Hole speech reiterated that the ECB stands ready to provide the Eurozone with more policy accommodation. For now EUR is expected to decline along with NZD.

Expected range: 0.6320 - 0.6380

NZD/JPY: Kuroda stands ready...

BoJ Governor Kuroda spoke at Jackson Hole and indicated the BoJ stands ready to provide more policy stimulus. This has put pressure on JPY.

Markets are expecting this pressure to continue.

Expected range: 87.00 - 88.50

NZD/GBP: Broadbent focus on wages...

BoE Deputy Governor said the focus is on wages, and the path of interest rates would be "materially different" this time. This is being read to mean much slower, with a lower end-point - putting pressure on GBP.

Expected range: 0.5060 - 0.5130

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