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BNZ Daily Markets Wrap and Strategy

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Fuseworks Media
Fuseworks Media


The NZD/USD pushed higher in the early hours of this morning, in the backdrop of a weak USD. It sits at 0.8620 this morning.

Yesterday’s ANZ business survey showed an expected pullback in its headline readings. But these were still consistent with up to 6.0% GDP growth in the year ahead. Pricing intentions in the survey were unchanged at +30.2, remaining on the high-side of average. They certainly provided no reason for complacency from the RBNZ regarding the inflation outlook. The NZD took the release in its stride, now well used to strong domestic data readings. It was not until early this morning, when broader USD weakness unfolded (see Majors), that the NZD began a steady ascent. The NZD/USD now trades at 0.8620, not far from resistance at the 0.8640 level.

The NZD also strengthened relative to many of its peers overnight. It has extended its recent bounce relative to its key European counterparts. The NZD/GBP and NZD/EUR sit at 0.5110 and 0.6220 respectively this morning.

There was also notable strength in the NZD/AUD. From 0.9220 last evening the cross has climbed steadily to 0.9280 currently. With nothing scheduled on the domestic agenda today, an important determinant of the cross will likely be the release of the China Manufacturing PMI (1pm NZT). Any disappointment would likely further support the NZD/AUD whilst taking a toll on the NZD/USD.


There USD weakened against most of its peers overnight. The USD index trades at 79.50 this morning.

As the Ukraine situation continues to simmer in the background, data delivery returned to the forefront as the driver of currency markets overnight.

First up, The Eurozone released CPI data. This showed core CPI picked up from 0.7% to 1.0% in April, in line with expectation. This will reduce some of the deflation concerns currently overhanging the region. The EUR was jolted higher, a trend which then continued overnight. The EUR/USD sits at 1.3870 this morning.

This provided the first of a number of downward steps for the USD. The second step came after the release of US Q1 GDP. This came in at just 0.1%q/q ann (1.2% expected). The disappointment was principally put down to the severe winter weather over the quarter. A solid rebound is expected in the current quarter. However, a toll was taken on the USD index. By contrast the currency showed little response to the US Fed’s announcement this morning (see Fixed Interest) which provided little surprise. From evening highs above 79.90 the USD index now sits at 79.50.

Most other currencies benefited from the broad USD weakness. The GBP/USD sits somewhat higher, at 1.6890, this morning. It has broken above previous resistance levels to sit at its highest level since August 2009.

The AUD has also strengthened slightly against the soft USD. The AUD/USD sits at 0.9290 this morning. Today, there will be two points of focus for the currency. The China Manufacturing PMI will be released at 1pm (NZT). Consensus expects activity to remain in mild expansion at 50.5. Later this evening the AU April commodity index will be released. The index has shown a declining trend in recent months.

Tonight, the UK PMI and UK mortgage approvals will be a focus for the now fairly elevated GBP/USD. US personal income, ISM Manufacturing Index, and the Fed’s preferred inflation measure, the PCE deflator, will also be released. Fed Chair, Yellen, also speaks in Washington. Otherwise, it’s all eyes on tomorrow night’s US payrolls data.

Fixed Interest

NZ swaps closed unchanged yesterday. Overnight US Treasuries showed little response to the Fed’s announcement.

The yield on NZ 2-year swap remains at 4.0% whereas we see current ‘fair value’ around 4.40%. This fair value is based on our central forecast that the OCR will reach 5.0% by end-2015. In the near-term we expect another 25bps rate hike at the RBNZ’s next meeting on 12 June. The key risk to this view is the strength of the NZD. The NZ TWI sits at 80.00 this morning, some 2.0% above the RBNZ’s projections for the June quarter average.

Meanwhile NZ bonds continue to appear well bid. This should help longer-dated NZGBs to outperform their offshore counterparts if US Treasuries lead a global sell-off in bonds. The next auction of nominal NZGBs is also not scheduled for another fortnight.

Overnight, the biggest response from US Treasuries was inspired by the disappointing release of US Q1 GDP. However, the recent growth weakness was not sufficient to stop the Fed in its tracks. This morning it announced a further US$10b worth of ‘tapering’ of asset purchases. It will now purchase US$45b per month.

US 10-year yields gapped from 2.71% to 2.67% on the release of the GDP data. They have subsequently drifted down to 2.66%, showing little response to the Fed’s announcement.

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