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England votes; US data positive, markets up; huge VW cheating settlement; McKinsey sees enormous China gains, and risks; UST 10yr yield up to 1.73%; oil up, gold lower; NZ$1 = 72.4 US¢, TWI-5 = 75.2

England votes; US data positive, markets up; huge VW cheating settlement; McKinsey sees enormous China gains, and risks; UST 10yr yield up to 1.73%; oil up, gold lower; NZ$1 = 72.4 US¢, TWI-5 = 75.2

Here's my summary of the key events overnight that affect New Zealand, with news of an enormous settlement in the VW diesel cheating case, and an enormous opportunity for China.

Firstly, most media are focused on the Brexit vote in a rain-sogged UK today and voting is about to wrap up. The result will likely be seen in the currency markets first. Bookmaker odds signal Remain. Last minute polling signals the same but with only a slight edge. In the end, it could turnout to depend on how voters turn out in the bad weather, which especially affect 'Remain' strongholds in London. That the weather could decide an election is very English. But in the end, no matter what the they decide, it will have little or no lasting impact on New Zealand. Or maybe no impact at all.

What will have an impact here is what is happening at our trading partners in the Pacific.

In the US, the number of Americans filing for jobless benefits fell last week to near a 43-year low. New home sales are running almost +9% above the same month a year ago. American June factory data picked up.

The same factory data does not look too good for Japan, but quite positive for Europe which reached a six month high.

The VW diesel cheating scandal is reaching a conclusion in the US courts where reports say VW will end up paying more than US$10 bln in settlement. Most will go to owners of affected vehicles, each getting about US$5,000. If that becomes the settlement benchmark, the costs could be far higher internationally.

China could add enormous GDP gains which could include more than US$5 tln of new income for households, by 2030, if it can switch to a productivity-led growth model. That is what the McKinsey Global Institute said overnight. It says China risks a hard landing if it persists with investment-led growth, which could push the non-performing loan ratio up to 15% in 2019 from an already troublesome 1.7% now.

In New York, the benchmark UST 10yr yield has extended its rises and this morning is up a further +3 bp to 1.73%.

However, the oil price is up marginally. The US benchmark is now just under US$50/barrel and the Brent benchmark is now over US$50/barrel.

Other commodities, like copper, are up as well. The gains have extended to dairy prices too (at least, in USD).

Gold is down further, now at US$1,261/oz.

And finally, the NZ dollar starts today decidedly firmer in what is now an extended trend, now at 72.4 US¢, at 95.3 AU¢, and at 63.8 euro cents. The TWI-5 index is at 75.2.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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21 Comments

So Wheeler said he wants a lower NZ, doesn't lower the OCR and the NZD is rising and rising since

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Wheeler may want a lower dollar, but he, himself, has been very clear that he cannot ever hope to push against the fx market. He knows he will lose if he tries (and lose taxpayer money in the process). He is right. No fx market intervention by the RBNZ can ever outweigh global currency tides. It is naive and unrealistic to expect that.

We have rising exports, a falling current account deficit, and good economic growth. This stuff benchmarks better than our peers. None of these base economic trends mean the NZD should be falling.

It is un-natural and unsustainable to expect the NZD to fall at present.

To force a reduction just to 'save' a few exporters dependent on commodities would be silly policy. The correct policy is to try to get those exporters to sell products that foreign customers will pay more for so the currency is not an issue. Most exporters have already done that. The remaining rump either need to change their outdated approach, or be left to wither.

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"A few exporters ", David.

Really?

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That's the story we are told David. The very same diligent, learned and serious types whose jobs depend upon the story are also those who repeatedly seem to fail in their objectives. Perhaps the story is wrong.

Perhaps too much money flowing in really is destabilising and weakening. Perhaps the first 5% actually does go into productivity enhancing projects, but the remainder just goes into pushing up house prices and building new ones for new people. Perhaps the overall effect really is negative.

We are not really an export oriented econonomy, that is secondary to our ability to draw in new money. The capital attraction economy is our primary one.

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"Good economic growth"?yet bugger all inflation to prove that claim! C'mon, let's actually deal with realities instead of just unfounded optimism. Artificially low interest rates to 'try' (I use that term loosely ) and stimulate growth is still the norm last time I looked. Our OCR maybe higher than many others but we are still at record lows ourselves.

Don't you find it somewhat odd/warped that our CPI is at record lows, our OCR also..... Yet our migration/ immigration numbers are at record highs? What are these people eating? Fresh air?

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The rain / thunder stopped in London with plenty of time left to vote. Was very much a remain stronghold anybody voting leave was keeping it very quiet. Lots of remain stickers and whatnot being handed out on the streets all day.

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Point of order re your headline - it's a British referendum, not just an English one.

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Yvil, the opinion of overseas FX traders is that Wheeler has given up. They know he will do nothing to assist the currency lower and so the are bidding it up like crazy.
Go and follow some of the trading discussion sites or blogs and you will see that its a NZD feeding frenzy. They know its open slather on this currency and nothing will even attempt to stop them. It touched .73 a few minutes ago and I wouldn't be surprised to see .75 at some stage soon.

Think what that will do to Fonterras $4.25 forecast.

I have said it before I'll say it again: Remove Governor Wheeler from RBNZ.

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Some magical moves in currency markets this morning. NZD getting tossed around like flotsam. Surging thru 73 US then losing a cent against the AUD .Spreads all over the place

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That is nonsense. If you look at minute-by-minute charts like a currency gambler you might get that impression for a short while. But take a day or week or longer view. The currency markets are actually quite calm.

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Most currency traders don't buy and hold DC......they are sitting behind sophisticated software programmes tracking their entry and exit points that is how they make their money...........

Exporters have to obtain a position long or short in between those who have nothing to export..........

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What?........ Down 112 pips in less than 2 hours on no news isn't erratic enough for you?

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Down 320 pips for the day now David. Are the markets calm enough for you?

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If you had read my comment DavidC , I made specific mention to this mornings trading . If you believe that the currency markets are quite calm then you are somewhat foolish.Secondly if you believe that the currency markets are primarily dictated by long term views then you are misguided, Most will trade against many time frames , some will trade tick by tick, whether they are gambling is debatable. Volatility like this morning provides opportunity for large gains and indeed losses. Anyone trading this morning or with existing open positions will not be looking one week or month ahead.

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NZD is heading to 75 on confirmation of the UK staying in the EU.
Where to next week is anyone's guess, but the volatility the market was so scared about will be no more and it will be back to BAU. This is of course if they vote to stay...

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I wouldn't bank on that at this stage. It is looking a lot less certain that the remain vote will win part way through the counting.

http://www.telegraph.co.uk/news/2016/06/23/leave-or-remain-eu-referendu…

NZ news coverage has gone ominously quiet on the subject.

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BBC news app has good live tracking of the results to date.

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looks more like brexit is going to happen, all depends on london

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Can someone knowledgeable in the automotive industry advise what the profit margin in dollars is per average VW sold? Shouldn't the fine be a least an amount more than the profit margin so they lose from the cheating?

White collar? The fine is always less than the crime .... and no one has to do time... carry on everything is fine.

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As Ralph Willis foresaw, the EU is apparently considering treating robots as persons, http://www.the-american-interest.com/2016/06/22/eu-moves-to-tax-robots-… and taxing the bejasus outta them. This, of course, compensates for the fact that the birthrate of native EU citizens is well below replacement, and the immigrants so fulsomely invited in by Mutti Merkel are not, shall we say, our type.

Which alters Ralph's lyrics jest a little:

Taxes on my 'lectric, taxes on my gas
I'll soon be paying taxes on my yas, yas, yas Robot

Or, to continue the metaphor, here's Leonard Cohen: Everybody Knows

And everybody knows that the Plague is coming
Everybody knows that it's moving fast
Everybody knows that the naked man and woman
Are just a shining artefact of the past
Everybody knows the scene is dead
But there's gonna be a meter on your bed Robot
That will disclose
What everybody knows

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