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BNZ Daily Markets Wrap and Strategy

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Fuseworks Media
Fuseworks Media


The NZD was among the worst performers on Friday, albeit in an evening where major currencies were little changed. NZD/USD closed 0.2% lower at 0.8740.

On Thursday, the currency’s resilience saw it outperform other majors to regain most of its losses against the USD after the strong US employment report. While we wouldn’t read too much into Friday’s decline, we suspect that profit-taking was a motive, given NZD/USD’s failure to breach 0.8800 for a second consecutive week.

With last week’s continued decline in commodity prices pressing at the back of investors’ minds, there looks to be some reluctance to test that topside resistance. But on the other hand, with volatility still very low, there is little incentive for those who are picking up the positive carry from exiting that trade.

This week, the Quarterly Survey of Business Opinion will be the focus, and is expected to hold up well. RBNZ officials Wheeler and McDermott both have speaking engagements, but these are closed to the public, so we don’t imagine too much in the way of headlines.

Today, we pick resistance at 0.8790, with initial support at 0.8700.


With US markets closed for the Independence Day holiday, markets were predictably quiet heading into the weekend. Most major currencies were less than 0.2% changed against the USD.

The best performer was the AUD, which pared some the sharp losses it saw after Governor Stevens’ speech on Thursday. A further decline in volatility likely helped, given the AUD’s carry appeal. The VIX dropped 0.5 points to a new post-GFC low at 10.32. The AUD/USD bounced 0.2% to 0.9370.

The US Dollar Index (DXY) managed to edge higher, posting its best weekly gain since late May. The US employment report released on Thursday looks to have given USD bulls a whiff of hope, in the face of Fed Chair Yellen’s relentless dovishness. The DXY closed 0.3% higher for the week.

The week ahead looks to be much quieter, especially where US and European releases are concerned. The US FOMC’s June minutes are unlikely to add anything new to the debate, but investors will keep an ear out for sound bites from the four Fed speakers due to make the rounds (Kocherlakota, Fischer, Lacker, George).

In Australia, the monthly Labour Force report on Thursday will be a highlight, with our NAB colleagues expecting a weaker-than-consensus result. The unemployment rate is picked to worsen further, to 5.9-6.0%, from 5.8% in May.

It should be a staid start to the week. If anything, the state of play in geopolitics might take some of shine off risk assets. In the Ukraine, pro-Russian rebels were dislodged from a key town amid a forceful push by government forces. But markets have generally been sanguine to these risks for much of 2014, and we don’t expect that to change any time soon.

Fixed Interest

NZ swaps ended 2-3bps higher in quiet trading on Friday. Offshore markets were directionless as the US celebrated Independence Day.

The NZ curve opened higher in yield after the previous day’s offshore moves, inspired by US payrolls data. However, markets failed to push on during the day. NZ 2-year swap closed at 4.24% and 5-year at 4.66%. The 2-10s swap curve sits a fraction steeper at 72bps.

We believe 2-year remains below ‘fair value’, of 4.40%, but we are wary of offshore receivers being tempted back into the market to cap yields near current levels. The next big test for the market’s OCR expectations will come with tomorrow’s Quarterly Survey of Business Opinion. We expect this to hold up well. However, the survey’s direct inflation indicators many well be restrained, for the meantime, by the high NZD. This may embolden receivers.

In the absence of trading in the US Treasury market on Friday night, German bund yields drifted lower. From 1.29%, the yield on 10-year bunds ended the week just above 1.26%. This remains not far from historic lows as the market anticipates easy policy from the ECB for the foreseeable future as it fights deflation risk.

It is a quiet start to the week. Domestically, QV house price data will be released today. There are no key US data releases scheduled for tonight.

For other BNZ research, such as the Markets Outlook and the Economy Watch, please go to

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