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Details of NZ deficit constructive and exports better-than-expected; RBNZ sold small amount of NZD but don't jump to conclusions around NZD being at fair value; OPEC agrees to keep oil production target unchanged

Currencies
Details of NZ deficit constructive and exports better-than-expected; RBNZ sold small amount of NZD but don't jump to conclusions around NZD being at fair value; OPEC agrees to keep oil production target unchanged

By Raiko Shareef

NZ Dollar

The NZD/USD is unchanged relative to its level yesterday morning (0.7870), having eased off overnight peaks amidst a broader (but mild) USD rally.

NZD continues to outperform its peers against the USD, largely because the NZ economy looks relatively healthy compared to others. Yesterday’s trade balance weighed in favour of that argument.

While the deficit was as wide as we expected at $908m (though wider than the market had picked), the details were constructive. Exports actually held their ground much better than expected, despite the ill effects of this year’s dairy price declines. But the real surprise was the strong import number, which hints at robust domestic demand for capital.

Also yesterday, the RBNZ revealed that it sold just $1m (net) over the month of October.

We wouldn’t jump to the conclusion that the RBNZ had decided that the NZD has reached fair value. Instead, we suspect the Bank has (rightly) assessed that recent conditions have not met the ‘opportune’ criteria, with the USD rally cooling its heels. We would be wary of a step-up in selling activity should NZD/USD head north of 0.80 in the near-term.

Today, NZ building permits and the ANZ business survey are due. We see support at 0.7800, and resistance at 0.7930.

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Majors

Most major currencies are weaker against the USD, led by the oil-producers NOK and CAD after OPEC agreed to keep its production target unchanged.

The commodity cartel’s lower-cost producers (Saudi Arabia the most prominent) apparently managed to convince other members that a supply cut was not guaranteed to support the oil price materially.

In the medium-term, OPEC will be hoping that a period of low prices will squeeze higher-cost producers (especially those in US shale), and eventually push prices to a higher equilibrium level.

The rather sanguine mood music from Riyadh over recent weeks should have been a clear signal that a dramatic cut was unlikely. Nevertheless, it appears that some in the market had held out hope of a production cut. As a result, Brent is down 6.7% today to $72.6, its sharpest single-day decline since early 2011.

That takes the overall decline from late June to over 38%. If sustained (as is expected over the near-term), this will continue to blow deflationary headwinds globally, but also provide a significant income boost to consumers over the coming year.

Oil-sensitive currencies such as the NOK and CAD are the biggest movers amongst FX, losing 1.5% and 0.8% against the USD respectively. That dragged the USD higher across the board, though moves against the other majors were fairly subdued.

The only other event of note overnight was yet another speech from ECB President Draghi, where he once again reiterated the Bank’s readiness to purchase any asset necessary to achieve its targets. However, he also noted that the ECB was entering into a quiet period of “not elaborating” on policy, likely with an eye to the 4 December Governing Council meeting. The risk for the market is that Draghi disappoints on that date by not delivering fresh easing measures.

Yesterday, Australia’s private capital expenditure report was more positive than anticipated. Private capex rose by 0.2% q/q against expectations for a 1.9% decline. Analysts were surprised by the extent to which non-mining investment offset the long-heralded decline in the mining sector. Ths will be encouraging for the RBA, and should pour cold water over this week’s speculation that the RBA was readying for another interest rate cut.

Most US investors would have taken today off to bridge the gap between Thursday’s public holiday and the weekend. As a result, expect volumes to be light and markets relatively muted. Euro-zone inflation is the only data of note due, and is expected to soften back to 0.3% y/y.

Daily exchange rates

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Source: CoinDesk

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1 Comments

While the deficit was as wide as we expected at $908m (though wider than the market had picked), the details were constructive. Exports actually held their ground much better than expected, despite the ill effects of this year’s dairy price declines. But the real surprise was the strong import number, which hints at robust domestic demand for capital.

 

Yes. The service costs of such capital demand that will longer be funded by "white gold"  exports. The debt rush must inevitably follow. The roar of further hollowing out of the NZ economy will be deafening. See the cost of the falling oil price comment.

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