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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: We expect the RBNZ to keep pressure on the NZD today, by reiterating the level is 'unjustified' and keeping the possibility of intervention open. NZD/AUD may find offers if AU unemployment retraces July increases.

RATES: Local rates are likely to open unchanged to a touch higher following moves in global markets. Today's RBNZ MPS is the key focus and we see some value in receiving 2yr swap rate here above 4.10%.

REVIEW

CURRENCY: AUD and NZD were offered as the USD continued to attract bids.

USD/JPY created a new cycle high, while GBP/USD bucked the trend after a poll put the No vote comfortably in the lead.

GLOBAL MARKETS: A fairly quiet session overnight, with equities little changed, although fixed income remained under pressure. German 10yr bund yields continued their steady grind higher, closing above 1% for the first time since mid-August. US Treasury yields also continued their drift higher with 10yr notes up 3bps to a six-week high of 2.53%.

Spanish yields continued to underperform (+6bps) on talk of future Catalan independence. GBP/USD rallied back above 1.62 on a Survation poll showing 48% of Scots in the "no" camp for independence (versus 42%

for "yes" and 10% undecided). BoE Governor Carney was also out on the wires overnight saying that the point where rates need to rise has moved closer, though the endpoint was likely to be materially lower than in past cycles. WTI crude oil prices fell another 1.2% to 16-mth lows as US data showed that stockpiles fell less than expected.

KEY THEMES AND VIEWS

RBNZ PREVIEW: TIME FOR A KITKAT. After four consecutive hikes the RBNZ is widely tipped to keep the OCR on hold at today's September Monetary Policy Statement while conveying a less hawkish policy stance. The risk profile has become more symmetrical in recent months, with a 45% fall in global dairy prices set to weigh on the NZ's terms of trade and overall outlook for growth. The Bank is also likely to fire another warning shot across the bows of the high NZD, which despite recent falls remains restrictive for much of the export sector. Despite increasing pressures on capacity, inflation has also remained low, with our expectation of a sub 1.5% annual CPI print over H2 also supporting the case for an extended OCR pause. Nonetheless, with the OCR still low at 3.5%, a soft tightening bias will remain, underpinned by a reasonably solid activity outlook. While the RBNZ will want to keep their options open as to the timing of future OCR hikes and the published projections will carry a lot of conditionality around them, we expect the 90-day bank bill track to be tweaked down closer to current market pricing, with a slightly lower endpoint (sub 5%) consistent with a March start to OCR hikes and more moderate path of policy tightening.

AUSSIE EMPLOYMENT PREVIEW. Our Australian economists expect jobs gains of 20k in August and for the unemployment rate to fall 0.2ppt to 6.2%.

OTHER EVENTS AND QUOTES

- The ECB's Mersch said the bank's ABS plan wasn't an overture to quantitative easing (QE), adding that the "purchase of government bonds would raise not insignificant institutional, instrumental and legal questions". He also said the effectiveness of government-bond purchases wouldn't be guaranteed given the present low yield environment.

NZD/USD: RBNZ to keep pressure on NZD...

We expect the RBNZ will continue to classify the NZD's level as

"unjustified" despite the fall of nearly 5c against the USD since the July OCR Review. This will ensure the threat of intervention remains a real one for the NZD, should it strengthen from current levels. Thus we would remain short.

Expected range: 0.8160- 0.8260

NZD/AUD: Unemployment to rebound?

The RBNZ and a potential retracement in the Australian unemployment rate after July's unexpected increase to 6.4% should put this cross back under pressure today.

Expected range: 0.8920 - 0.9010

NZD/EUR: French join the party?

French industrial production and Spanish industrial output were both much stronger than expected. Does this herald a rebound in European activity?

Expected range: 0.6340 - 0.6400

NZD/JPY: JPY accelerates...

USD/JPY drove to a new cycle high last night sending this cross higher despite the weak NZD. The JPY move is driven by market expectations of further policy reform from 'Abenomics' as well as USD optimism.

Expected range: 87.10 - 88.10

NZD/GBP: A new poll says no...

Sterling outperformed NZD again overnight as a new poll put the No vote comfortably in the lead. The only issue for this cross remains Scotland, and we can expect further gyrations.

Expected range: 0.5050 - 0.5140

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