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BNZ Daily Markets Wrap and Strategy

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Fuseworks Media
Fuseworks Media


The NZD underperformed on Friday night along with its commodity-linked peers (CAD, AUD). The NZD/USD ended the week at 0.8150.

On Friday, NZ food and house price data suggested the RBNZ can afford to take its time before resuming its rate hiking cycle (see Fixed Interest). However, the manufacturing sector showed signs of strength as the PMI rebounded to 56.5 in August from 53.0 in July (a reading above 50 denotes expansion). Further falls in the NZD would likely be welcomed by much of this sector. The NZD/USD extended its decline on Friday night, to end the week around 0.8150, its lowest level since early-February. Support is now seen around 0.8110.

The NZD dropped sharply against its European peers on Friday night, even against the previously beleaguered GBP. The NZD/GBP now sits just above the psychologically important 0.5000 level. The fate of the cross this week will reside with the outcome of the Scottish independence vote. A ‘no’ vote could see a knee-jerk rebound in the GBP (see Majors).

Meanwhile the NZD/AUD extended its recent rebound, touching intra-night highs near 0.9040 before ending the week at 0.9020. Disappointing Chinese data released over the weekend, may weigh on the AUD more than the NZD today (see Majors). This could see the NZD/AUD push higher. We see NZD/AUD at 0.9100 by year-end.

Today, the only data on the domestic agenda is the August BNZ Performance of Services Index. It may continue to signal a strong growth pulse from this sector in Q3, but is not normally a major currency mover.


The EUR rebounded versus the USD on Friday night. The CAD, AUD and NZD underperformed.

Equities closed down modestly on Friday night, despite generally positive US data outcomes. Commodities were also generally softer, with the gold price falling almost 1%, to levels not seen since early-January.

The USD index showed it was not invincible on Friday. It subsided a little despite supportive data releases. August US retail sales data came in at 0.6%m/m while the University of Michigan Consumer confidence index rose to 84.6 in September, a 14-month high. Both serve to support the view of strong consumption growth in Q3 and that the economic recovery has good momentum.

However, much of that view has already been priced by the surge in the USD since early-July and a period of consolidation now appears to be taking place. The USD index ended the week slightly lower at 84.20.

Meanwhile the EUR/USD pushed higher in the early hours of Saturday morning, rebounding further from recent lows. It ended the week at 1.2960. It was interesting to note that last week’s CFTC data showed a reduction in speculative EUR short and USD long positions.

The GBP/USD consolidated on Friday night, as we approach this week’s Scottish independence vote. The GBP managed to hold onto its recent bounce, following its previous harsh fall, as two of three polls showed a tilt toward the ‘no’ vote. Still it remains very tight with a lot of potential volatility for the GBP/USD ahead. It sits at 1.6270 this morning.

The AUD underperformed on Friday evening along with its commodity-linked peers (CAD, NZD). The AUD/USD has now extended it precipitous fall to 0.9040. China data released over the weekend will likely weigh further on the AUD today. China August industrial production data came in below expectation (6.9%y/y vs.8.8% expected), at its lowest level since end-2008. The next focus for the AUD will be the release of tomorrow’s RBA minutes from its September meeting.

Tonight, the US Empire manufacturing index and industrial production data will be released. The EU trade balance is also due.

Fixed Interest

It was a relatively quiet end to the week in NZ markets, although NZ bond yields pushed higher across the curve. On Friday night US 10-year yields pushed up from 2.56% to 2.61%.

On Friday, August food price data added to evidence that near-term inflation is subdued, and the RBNZ can afford to wait before hiking rates again. Nationwide house price appreciation was also shown cooling to 4.8% in August from 5.9% in July.

Overall, moves in NZ swaps were limited as the market consolidated after Thursday’s RBNZ meeting. 2-year swap closed up 2bps at 4.06%, while 10-year closed up 1bps at 4.69%. We continue to see short-end swaps being fairly range-bound in coming months while the RBNZ remains on hold until March, at least. Meanwhile NZ bond yields pushed higher by 2-4bps across the curve. This has taken the spread between NZGB23s and swap below 38bps, a level we would position for widening.

On Friday night, solid US data helped nudge US long-yields higher. As US 10-year yields rose from 2.56% to 2.61% the US curve steepened. Yields are now at their highest level since early-July.

Over the weekend, China released data showing August industrial production to be below expectation. This may dampen any push higher in yields at the start of the week. Otherwise the offshore focus this week will be the US FOMC meeting early Thursday morning (NZT). Domestically, Thursday’s 2Q GDP release will be key. Today, we will ease into the week with the release of the NZ PSI.

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