By Mike Burrrowes and Kymberly Martin
NZD has been relatively range-bound over the past 24-hours, as a nervous calm has descended on global markets. Our risk appetite index (scale 0-100%) has stabilised at a low 29%. NZD currently trades around 0.7830.
Yesterday’s NZ September electronic card transactions were disappointing. Total transactions rose 0.2% in the month, retail rose 0.4% and core retail was up 0.6% - all major segments failing to even claw back their August dip. There were some signs of Rugby World Cup spending in the likely areas of hospitality up 1.2% and fuel up 2.9%, but lacklustre growth elsewhere. The data however, failed to make an impact on NZD, which continues to take its cue from global developments at present.
NZD/AUD showed some choppy trading overnight, slipping below 0.7840 early this morning. The NZ-AU 3-year swap spread which is a component of our “fair value” model, remains relatively stable around -95bps.
Relative to EUR, NZD bobbed sideways at 0.5730 overnight. Against a broadly weaker GBP, given ongoing soft UK data, NZD made some headway, rising to 0.5020 this morning.
The release of QVNZ house price data today is unlikely to be market moving. Instead, NZD will continue to look to global sentiment for direction. Key global data releases are also light today. However, the market will await the outcome of the Slovakian vote to ratify the EFSF expansion, and look for further headlines from Europe.
It has been a very quiet 24-hours in currency markets. Market risk sentiment appears to be stabilising at low levels as the market awaits the next big news headline in the European debt crisis. The USD index traded in a tight range around 77.60 overnight, in the absence of key data releases.
EUR was also relatively range bound overnight, spurred a little higher in the early hours of this morning as the market awaits the Slovakian vote to expand the EFSF. This would be the last of the 17 EU member approvals required. The EUR traded from around 1.3640 last evening to 1.3680 this morning.
GBP was the weakest performing currency over the past 24-hours declining 0.40% versus the USD. UK manufacturing production declined 0.3%m/m in August (-0.2% expected), for a third consecutive month of decline. Industrial production was a little more solid at 0.2%m/m. (-0.2% expected) The GBP/USD traded down to 1.5610.
“Commodity-linked” AUD, CAD and NZD all traded in a relatively tight band relative to USD, in the backdrop of further modest gains in global commodity prices. The CRB global commodity index was up just over 1%, as was the WTI oil price. Equity markets were fairly flat. AUD/USD jogged around just below parity last night, to trade at 0.9990 currently.
Eurozone industrial production data will be released this evening, along with US Federal Reserve minutes for September. The US Q3 earnings season will also launch this evening, with Alcoa reporting. After the very solid Q2 outcome, this season will be important to watch, to see how current global woes are affecting US corporate profitability.
Fixed Interest Markets
It was a fairly quiet day in NZ fixed interest markets.
NZ swap yields rose early in the day. Receiving interest in shorter-dated swaps into the close saw yields up only 2-4 bps overall. 2-year closed at 3.15% and 10-year at 4.58%. As risk sentiment globally has stabilised at low levels in recent sessions, market expectations for RBNZ rate hikes have inched higher to around 30bps for the coming year. They bottomed around 10bps in recent weeks.
Bond yields inched a little higher yesterday. The yield on 21s closed at 4.53%, its highest level in 5 weeks. Its yield remains around 20bps above its Australian counterpart. This gap may partly reflect a small risk premium, given NZ’s lower sovereign rating and higher CDS spread (a measure of potential default risk). NZ’s 5-year CDS has moved up to close to 100bps while Australia is at 81bps.
After Monday’s US holiday, US 10-year yields opened up 10bps higher at 2.18% yesterday. They traded as low as 2.12% overnight, moving back to 2.17% currently. This is their highest level since the start of September. With some nervous calm in Europe, for now, the market has moved away from pricing an Armageddon scenario. The market is also recognising that US data disappointments have been diminishing recently.
Once again there are no key NZ data releases today. Expect more gentle upward pressure to NZ yields today given stable risk sentiment and rises in off-shore yields overnight.
Mike Burowes and Kymberly Martin are part of the BNZ research team.