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BNZ Daily Markets Wrap and Strategy

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Fuseworks Media
Fuseworks Media

NZD

The NZD slipped along with most of the majors against the USD on Friday, dipping 0.3% to 0.8360. That puts NZD/USD smack in the middle of the 0.8300-0.8420 range it largely kept through late August.

On Friday, the ANZ business survey showed more softness than the market had likely anticipated. The headline confidence measure slid to +24.4 from +39.7, while the own activity expectations indicator dipped to +36.6 from +45.1. Much of the drag stemmed from the agricultural sector, as recent price declines weigh.

This week should see more of the same, with commodity prices taking centre stage amongst local data releases. Today, we expect that NZ’s official terms of trade will finally begin to account for dairy price decline seen earlier in the year. We pick the Q2 reading to fall by 5.1% q/q. Later this week, we are due updates from the ANZ commodity price index (Tue) as well as the fortnightly dairy auction (Wed).

Today, we see support just above 0.8300, and expect initial resistance at 0.8420.

Majors

The USD gained on Friday, as investors chose to take positives from a mixed set of US data. The US Dollar Index gained 0.3% to hit a new fresh 2014 high at 82.7, helped there by an underperforming EUR.

US data kicked off on a less-than-positive note, with July’s personal incoming and spending data disappointing. Personal income rose by 0.2% (+0.3% exp), while personal spending fell by 0.1% (+0.2% exp). This puts a downward bias on analyst expectations for Q3 GDP.

But later in the evening, the Chicago PMI showed a better-than-expected rebound from July’s lows, at +64.3 vs +56.5 exp. In addition, the Univ. of Michigan consumer confidence index also improved, to +82.5 vs +80.0 exp.

The market was braced for sickly euro-zone inflation data, and was not disappointed. The headline measure slipped to just +0.3% y/y (as anticipated), though the ECB will take heart from an unexpected improvement in the core (ex-energy) measure, which rose from +0.8% y/y to +0.9%. Nonetheless, the market continues to expect further easing at this week’s meeting, and EUR/USD was the worst-performing major currency on Friday, falling 0.4% to 1.3130.

Tensions seem to be on the rise again in the Ukraine, after what Western officials called a Russian invasion in everything but name last week. Investors are braced for a fresh round of sanctions. Over the weekend, European leaders agreed to impose tougher sanctions on Russia, possibly targeting energy and finance, if the war in Ukraine worsens. EU leaders gave the European Commission a week to deliver proposals for the penalties and left open the precise trigger for further sanctions.

It is a huge week in news and data. In addition to the full handful of central bank meetings (see Fixed Interest), data highlights include Australian Q2 GDP on Wednesday, and the US employment reports on Friday. Note that the US is on holiday today, for Labor Day.

Fixed Interest

NZ interest rates edged higher on light liquidity on Friday, as local banks continued to pay at these levels. Offshore receivers were apparently absent, allowing the 2-year swap to drift 1bp higher to 4.07%.

Overseas bond markets were fairly subdued, with month-end flows lighter than expected. With US data mixed (see Majors), Treasuries were effectively unchanged for the day. The 10-year Treasury yield rose just 0.7bps to 2.34%.

With the US markets closed today for the Labor Day holiday, rates markets should be fairly subdued. That said, the rest of the week is action-packed, with no less than with no less than five central banks announcing policy decisions. Of those, only the ECB is expected to take any action. We expect the Governing Council to cut interest rates by a further 0.10%, and provide further clarity on plans to purchase asset-backed securities.

Other news: -Canada Q2 GDP +3.1% y/y vs +3.0% exp. -UK Nationwide house prices +11.0% y/y vs +10.8 exp.

For other BNZ research, such as the Markets Outlook and the Economy Watch, please go to www.research.bnz.co.nz.

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