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BNZ Daily Markets Wrap and Strategy

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Fuseworks Media
Fuseworks Media

NZD

The NZD/USD sits only fractionally lower this morning, at 0.8490, having touched intra-night around 0.8530.

It was a relatively quiet start to the week, with only thin data-flow, and Australia observing the Queen’s Birthday holiday.Yesterday morning’s NZ Q1 wholesale trade data slipped a seasonally adjusted 0.4%.Technically speaking, it shaves 0.1% off our Q1 GDP growth estimate. But we’ve left it at 1.2% for now, as we await today’s NZ manufacturing report (10.45am NZT).This may well fill the slight ’hole’ left by yesterday’s data.

Meanwhile, the NZD/USD drifted slightly higher over the course of the day but failed to push above 0.8530. Our model shows momentum no longer favours the NZD/USD. However, we suspect it may receive a near-term boost if the RBNZ re-confirms its medium-term commitment to OCR hikes on Thursday. We see solid near-term support for the NZD/USD at 0.8400. Resistance will likely be encountered on any probes toward 0.8550.

The most notable overnight moves on the crosses were for the NZD/AUD and the NZD/EUR. In the backdrop of broader EUR weakness (see Majors) the NZD/EUR pushed up to trade around 0.6250 this morning. By contrast the NZD/AUD was on a steady path lower overnight. From above 0.9110 it now trades at 0.9070. We continue to look for a rebound into the region of 0.9260. We expect the market to reassess the relative interest rate and commodity price outlooks on either side of the Tasman. For today, a key focus for the cross will be the release of the NAB business survey (1.30pm NZT).

Majors

The USD strengthened towards 80.70 overnight as the EUR weakened.

Markets began the week in a fairly upbeat frame of mind, following on from Friday’s US payrolls release. Our global risk appetite index (scale 0-100%) remains at a fairly heady 84%. Equities on both sides of the Atlantic provided modest gains as credit spreads narrowed further. Global commodities also pushed higher led by oil. The WTI oil price now sits around $104.40, a similar level to its highs of late May that marked its highest levels since mid-2011.

It was fairly light on the data front overnight. The EUR/USD attempted an early evening push higher but soon retraced its steps. The release of the Sentix survey of Eurozone investor confidence unexpectedly declined to 8.5 (13.3 expected). The EUR/USD slipped from intra-night highs above 1.3660 to around 1.3590 currently.

Yesterday morning’s Japanese data showed the final reading of Q1 GDP at 1.6%q/q (1.4% expected), for a massive 6.7% annualised pace. The JPY was on the ascendancy after the release but ran out of steam overnight. The USD/JPY touched intra-night lows below 102.40 before returning to trade at 102.50 currently.

As Australia returns from its Queen’s birthday holiday today the AUD/USD sits at 0.9350. Today, the NAB business survey will be released. Tonight, UK industrial production data and the NIESR’s May UK GDP estimate will be released. Wholesale inventories and weekly mortgage applications will be released in the US.

Fixed Interest

NZ swaps pushed higher by 2bps across the curve yesterday. Overnight, US 10-year yields tracked sideways around 2.61%.

Yields on NZ 2 and 5-year swap closed at 3.98% and 4.43% respectively. The 2-10s curve continues to sit at 86bps. As a point of reference, current 2-year ‘fair value’, based on our projected OCR track (which sees a 5.0% peak late next year), sits around 4.60%. We continue to see solid hedging opportunities across 2-5-year swap rates based on our OCR trajectory.

Overnight, in the absence of key data releases, equity markets continued their steady trek higher. US 10-year yields traded very tight ranges between 2.60% and 2.63%.

Today, NZ Q1 manufacturing volumes will be released, as another key input to Q1 GDP. We expect sales and inventory figures to infer a 1.5% gain in the industry’s production. On this basis we continue to look for a fairly chunky 1.2%q/q Q1 GDP releases (due 19 June). Across the Tasman, today’s key release will be the NAB business survey.

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